MANAGERIAL ACCOUNTING – 12th Edition

CH 13 TERMS

Avoidable costs – A cost that can be eliminated (in whole or in part) by choosing one alternative over another decision. This term is synonymous with relevant cost and differential cost.

Bottleneck – A machine or some other part of a process that limits the total output of the entire system.

Constraint – A limitation under which a company must operate, such as limited available machine time or raw materials, that restricts the companies ability to satisfy demand.

Differential costs – Any cost that differs between alternatives in a decision-making situation. This term is synonymous with relevant cost and avoidable cost.

Joint costs – Costs that are incurred to keep defects from occurring.

Joint products – Two or more products that are produced from common input

Make or buy decision – A decision concerning whether an item should be produced internally or purchased from an outside supplier.

Relaxing the constraint – An action that increases the amount of a constrained resource. Equivalently, an action that increases the capacity of the bottleneck.

Relevant cost – A cost that differs between alternatives in a decision. This term is synonymous with differential cost and avoidable cost.

Sell or process further decision –A decision as to whether a joint product should be sold at the split off point or sold after further processing.

Special order –A one-time order that is not considered part of the company’s normal ongoing business.

Split-off point –That point in the manufacturing process where some or all of the joint products can be recognized as individual products.

Sunk cost – Any cost that has already been incurred and that cannot be changed by any decision made now or in the future.

Vertical integration –The involvement by a company in more than one of the activities in the entire chain from development through production, distribution, sales, and after-sales service.

.