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