MBA 700 GAO HW 5 Practice Flashcards

VOCABULARY flashcards covering managerial accounting concepts including relevant costs, outsourcing, segment analysis, and constrained resources based on MBA 700 HW 5.

Constrained environment production criteria

In a constrained environment, companies should produce products with the highest contribution margin per unit of the constrained process.

Segment drop condition

A segment should be dropped only when the decrease in total contribution margin is less than the decrease in fixed cost.

Disadvantages of outsourcing

Takes away control over quality and timing of production and limits the ability to upsize or downsize production.

Qualitative decisions in outsourcing

Factors to consider in outsourcing that exclude quantitative data; notably, relevant costs are NOT considered a qualitative decision.

Approaches to analyze segment discontinuance

The two primary approaches are comparing contribution margins and fixed costs, or comparing the total net income under each alternative.

Sunk costs

Incurred costs that are not relevant in decision-making because they have no bearing on future events and should be excluded.

Opportunity costs

The costs associated with not choosing the other alternative, representing the potential benefit lost by taking a specific action instead of alternative actions.

Outsourcing

The act of using another company to provide goods or services that your company requires.

Out-of-pocket cost

A cost that requires a future outlay of cash and is relevant for decision-making.

Incremental cost

An additional cost resulting from selecting a certain course of action.

Segment elimination decision rule

Business segments should be considered for elimination if their revenues are less than their avoidable expenses.

Product E and F Differential Profit

The differential profit from producing product E ($450$ CM per batch, $25$ set-ups) instead of product F ($340$ CM per batch, $20$ set-ups) for the year is $"12,000$ given a capacity of $12,000$ set-ups.

Jansen Crafters Special Order Profit

If Jansen accepts the special order for $1,200$ shelves at $"26$ (avoiding the $"1.50$ packaging cost included in the variable unit cost of $"27$), profits will increase by $"600$.

Mallory's Video Supply Rework Impact

Processing work-in-process units further results in a $"5$ per unit profit, calculated by comparing the rework net price ($"38$ sale price minus $"11$ rework cost) to the as-is sale price of $"22$.

Youngstown Construction Discontinuance Effect

Discontinuing a segment with a contribution margin of $"65,000$ and fixed costs of $"70,000$ (where only half the fixed costs are avoidable) results in a decrease of $"30,000$ to overall profit.

Machine Hour Constraint (Product A vs. B)

Where Product A has a lower contribution margin per machine hour than Product B, the company should Produce only Product B to maximize profit within its $240,000$ machine hour capacity.

Epsilon Company Make-or-Buy Decision

The company should choose to Make because the internal relevant cost of DM ($"7$), DL ($"20$), and avoidable overhead ($"40 \times 70\% = "28$) totals $"55$, which is less than the outside supplier's offer of $"60.00$.