Chapter 10 part 2
Irrelevant Costs include:
-Sunk Costs -Future costs that don't differ between alternatives -Some Fixed Costs (Some Fixed Costs can be Relevant)
Joint costs can/cannot be avoided once a product is started
CANNOT
Contribution Margin per Pound of Materials Used =
Contribution Margin per Unit / Pounds Required per Unit
Sell or Process Further Decisions
Deciding whether or not it is profitable to continue processing a joint product after the split-off point
On Income Statements, make sure not to subtract specific costs of a product line from:
Depreciation on Special Equipment or from Common Allocated Costs
Special Orders:
Direct Materials + Direct Labor + Variable Overhead + Special Fees/Expenses = Cost per Unit Revenue per Unit - Cost per Unit = Net Operating Income per Unit
Pounds Required per Unit =
Direct Materials Required per Unit / Cost per Pound
Analysis of Sell or Process Further
Final Sales Value after Further Processing - Sales Value at Split-Off Point = Incremental Revenue from Further Processing - Cost of Further Processing = Profit/Loss from Further Processing
Be careful when allocating:
Fixed Costs
Allocation of joint costs is needed for:
Inventory Valuation, NOT decision-making
A Segmented Income Statement is better for assessing the:
Long-Run profitability of various product lines
Contribution Margin of Special Order =
Profit Increase
Joint Cost
The cost incurred up to the split-off point. THIS INCLUDES THE COSTS OF THE SEPARATING PROCESS.
Depreciation on Special Equipment is still considered:
Traceable, as a fixed expense
Intermediate Product
Unfinished but still buyable (and cheaper to buy) product such as undyed wool
Variable Selling and Administrative Expenses =
Unit Cost relevant to establish a minimum selling price
Joint Costs _ economically attributable to all end products.
are NOT
Be careful not to double-allocate costs for, for example:
further processing of a byproduct to sell as a supply for something else
To maximize total contribution margin when a constrained resource exists, produce the products with the:
highest contribution margin per unit of the constrained resource
Joint costs that have already been incurred up to the split-off point are always _ in decisions concerning what to do from the split off point forward.
irrelevant
A new Segment Margin is simply added to the:
original cost of making a product line
Joint Costs are usually allocated according to the:
relative sales value of the end products
Joint costs are _ when considering the profitability of any one product.
relevant
Common Fixed Expenses go after:
the Product Line Segment Margin
Space being used that would otherwise be idle has an opportunity cost of:
zero