For a cost or revenue to be relevant to a particular decision, the cost or revenue must quizlet

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Terms in this set (34)

All of the following costs are relevant to make or buy a decision

1. the opportunity cost of space
2. costs that are avoidable by "buying rather than making"
3. variable costs of producing the item
4. costs that are differential between the make and buy alternatives

Allocated common costs

are never relevant in decision making

The relevance of a particular cost to a decision is determined by the

potential effect on the decision

Relevant or differential cost analysis

considers all variable and fixed costs as they change with each decision alternative

The term that refers to costs incurred in the past that are not relevant to a future decision is

sunk cost

Which one of the following is most relevant to a manufacturing equipment replacement decision?

disposal price of the old equipment

Which of the following best describes a "sunk cost"?

costs that were incurred in the past and cannot be changed

For purposes of allocating joint costs to joint products, the sales value at split-off method can be used in these situations:

no costs beyond split-off & costs beyond split-off

In accounting for byproducts, the value of the byproduct may be recognized at the time of:

production & sale

To affect a decision a cost must be:

future

Incremental

an expenditure which will be incurred or avoided as a result of making a decision

Non-incremental

any costs which would be incurred whether or not the decision is made

Costs that are irrelevant to decision making are:

1. sunk costs
2. future costs that cannot be changed
3. these costs are unavoidable

Differential analysis

the process of estimating the consequences of alternative actions that decision makers can take

Relevant Costs (or revenues) must meet two criteria:

1. they must be expected future amounts
2. they must differ between two of the alternatives being considered

T/F- Costs that are relevant to one decision may not be relevant to a different decision

true

Total cost approach

consider all costs

Differential cost approach

only factor in relevant costs

The term relevant cost applies to all the following decision situations except the

determination of a product price

Alpha corporation is considering renting vacant office space to Beta Company. Which of the following is not relevant to this decision?

The amount of property taxes paid by Alpha corp on the office space

Incremental costs (revenues)

the additional cost incurred for an activity/the additional revenue from an activity

Differential costs (revenues)

the difference in cost between two alternatives/the difference in revenues between two alternatives

Opportunity cost

the contribution to income that is foregone or rejected by not using a limited resource in its next best alternative use- not included in the accounting records

Two common pitfalls in relevant-cost analysis:

Assuming all variable costs and fixed costs are relevant

When considering a special order that will enable a company to make use of currently idle capacity, which of the following costs is irrelevant?

depreciation

In-sourcing

process of producing goods or performing services within the organization rather than purchasing the same goods or services from outside suppliers

Costs relevant to an in-sourcing decision

1. avoidable fixed costs
2. factory depreciation
3. property taxes
4. factory management costs

What should be ignored when deciding whether to sell as is or process a product further?

the costs incurred in producing the product as is

Which of the following should not be considered for every option in the decision process?

historical costs

What is always the question to ask to determine if revenues or costs are relevant?

what difference will a particular action make

Bottleneck

a phenomenon where the performance or capacity of an entire system is limited by a single or limited number of components or resources

Main product

output of a joint production process that yields one product with a high sales value compared to the sales values of the other outputs

Joint products

outputs of a joint production process that yields two or more products with a high sales value compared to the sales values of any other outputs

Byproducts

outputs of a joint production process that have low sales values compared to the sales value of the other outputs

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Verified questions

ADVANCED MATH

Translate each sentence into an equation. Tell how you are assigning the two variables. a) The perimeter of a basketball court is 40 m. b) The average of two numbers is 15. c) The value of the quarters and loonies in a vending machine is $37. d) The total receipts from adult tickets at$20 each and student tickets at $12 each was$9250.

Verified answer

ADVANCED MATH

(a) Show that 7 and 18 are the only incongruent solutions of $x^{2} \equiv-1\left(\bmod 5^{2}\right) .$ (b) Use part (a) to find the solutions of $x^{2} \equiv-1\left(\bmod 5^{3}\right)$

Verified answer

ADVANCED MATH

During the next three quarters, Airco faces the following demands for air conditioner compressors: quarter 1—200; quarter 2—300; quarter 3—100. As many as 240 air compressors can be produced during each quarter. Production costs/compressor during each quarter are given in Table 78. The cost of holding an air compressor in inventory is $100/quarter. Demand may be backlogged (as long as it is met by the end of quarter 3) at a cost of$60/compressor/quarter. Formulate the tableau for a balanced transportation problem whose solution tells Airco how to minimize the total cost of meeting the demands for quarters 1-3. TABLE 78: $$ \begin{matrix} \text{Quarter 1} & \text{Quarter 2} & \text{Quarter 3}\\ \text{\$200} & \text{\$180} & \text{\$240}\\ \end{matrix} $$

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ADVANCED MATH

The cost of producing x units of a product during a month is x2 dollars. Find the minimum cost method of producing 60 units during the next three months. Can you generalize this result to the case where the cost of producing x units during a month is an increasing convex function?

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