Accounting chapter 14 revise

what is a sunk cost?

-Sunk costs are costs that have already been incurred. -They do not affect any future cost and cannot be changed by any current or future action. -These cost are irrelevant (should be ignored in decision making)

what data should be included used to make a decision?

1) relevant ( to the decision on hand) 2) It should be accurate (it should be true or correct estimate) 3) Timely (available in time for the decision)

What is Relevant cost?

1.Has a bearing on the future (i.e., relate to the future). 2.Differs among the alternatives. (this is the alternative cost)

what is Add or Drop Decision ?

A decision whether to add or drop a product, service, or department. - you subtract "segment contribution margin" with the "avoidable Fc" to get NOI Note whether you keep or drop you have to include depreciation and insurance these are relevant.

What is a joint production process?

A joint production process results in two or more products.

I. The cost of existing inventory, in a keep vs. disposal decision. II. The cost of special electrical wiring, in an equipment acquisition decision. III. The salary of a supervisor who will be transferred elsewhere in the organization, in a department-closure decision. Which of the above costs is (are) relevant to the decision situation noted? A. I only. B. II only. C. III only. D. I and II. E. II and III.

B. II only

Consider the following costs and decision-making situations: I.The cost of existing inventory, in a keep vs. disposal decision. (sunk cost) II.The cost of special electrical wiring, in an equipment acquisition decision. III.The salary of a supervisor who will be transferred elsewhere in the organization, in a department-closure decision. (no because it does not meet the second requirement for relevant cost) Which of the above costs is (are) relevant to the decision situation noted? A. I only. B. II only. C. III only. D. I and II. E. II and III.

B. II only.

In a make-or-buy decision, relevant costs include: A. unavoidable fixed costs B. avoidable fixed costs C. fixed factory overhead costs applied to products D. fixed selling and administrative expenses

B. avoidable fixed costs

What is sell or process further ?

Compare(sub/find the difference) "Incremental revenue" & "Incremental cost" of processing further

Which of the following best defines the concept of a relevant cost? A. A past cost that is the same among alternatives. B. A past cost that differs among alternatives. C. A future cost that is the same among alternatives. D. A future cost that differs among alternatives. E. A cost that is based on past experience.

D. A future cost that differs among alternatives.

Managerial accountants have the highest impact on which steps of the decision making process: A. Define the Problem. B. Select Criteria. C. Create a Decision Model. D. Collect data for the Decision Model. E. Make a Decision.

D. Collect data for the Decision Model.

When a make-or-buy (outsourcing) what happens to relevant cost?

IF relevant cost buys then = purchase price If the relevant cost makes then = cost that can be avoided when outsourcing.

If there is excess capacity in special orders what happens?

If there is excess capacity then Relevant costs will usually be the variable costs associated with the special order.

If there is no excess capacity in special order what happens?

If there is no excess capacity then Relevant costs will usually be the variable costs associated with the special order but opportunity costs of using the firm's facilities for the special order are also relevant.

what is the analysis of special decisions?

Special Orders Make-or-Buy Decision (or "Outsourcing Decision) Add-or-Drop Decision

What is the split-off point?

The point in the production process where the joint products are identifiable as separate products is called the split-off point.

What is a make-or-buy decision?

a decision whether an item should be produced internally or purchased from a supplier. (BASIC IDEA IS TO FIND WHETHER YOU SHOULD PRODUCE OR PURCHASE FROM SUPPLIER)

What is opportunity cost?

the most desirable alternative given up as the result of a decision and it is relevant and include in our decision.

What is limited resources?

•Firms often face the problem of deciding how limited resources will be used. •Fixed costs are not usually affected by this decision, so focus on maximizing total contribution margin. •We do this by calculating the contribution margin per unit divided by the limited resource.