Ch.23 Learn Smart

The decision rule for segment elimination is to consider eliminating a segment if the segment revenues are less than the segment ____ expenses
avoidable
When making additional business decisions, management should consider (4)
1. existing sales
2. incremental revenues
3. incremental costs
4. available capacity
In a make or buy decision, management should consider (4)
1. available capacity
2. incremental costs
3. employee morale
4. product quality
When making sell or process decisions, management should consider (3)
1. revenue from selling as is
2. incremental costs of processing further
3. revenue from selling after further processing
Relevant ____ refer to the additional or incremental revenues generated by selecting a particular course of action over another.
benefits
List the steps of the decision making process, with the first one as 1 (5)
1. define task and goal
2. identify alternative actions
3. collect relevant information
4. select course of action
5. analyze and assess decision
When making keep or replace equipment decisions, management should consider (3)
1. operating cost of the old equipment
2. operating cost of the new equipment
3. trade-in allowance on the old equipment
When production facilities are limited, the company should produce the mix that will not exceed demand and maximize the production of the product with the
highest contribution margin per unit of scarce resources
A ____ cost is the potential benefit lost by taking a specific action when two or more alternative choices are available.
opportunity
A student is deciding whether to take an additional class or work extra hours. Which amounts are relevant to this decision? (3)
1. tuition for the class
2. cost of textbook
3. hourly wages
A ____ cost arises from a past decision, can’t be avoided or changed, and is irrelevant to future decisions.
sunk
When making scrap or rework decisions, management should consider (3)
1. lost profit on making and selling new units while reworking defective units
2. revenue from selling defective units as scrap
3. incremental costs
____ costs, also called differential costs, are the additional costs incurred if a company pursues a certain course of action.
Incremental
When considering _____ of a segment, management should look at more than the segment’s performance report.
elimination
When making decisions, managers should consider all relevant costs, which include (3)
1. incremental costs
2. opportunity costs
3. out-of-pocket costs
_____ are pertinent, but not relevant to future decision making since a ____ will not make a difference in the decision.
sunk cost, sunk cost
An ____ cost requires a future outlay of cash and is relevant for current and future decision making.
out-of-pocket
An ____ expense is the amount that would continue if a segment is eliminated.
unavoidable
The total ___ method of setting prices includes the product’s total costs plus a desired profit.
cost
When determining a product price, what should be taken into account (4)
1. fixed cost
2. profit margin
3. variable costs
An ___ expense is the amount a company would not incur if a segment is eliminated
avoidable