7 - Relevant Costing

Question 1

what are the two assumptions for RC?

Answer 1

• economic rationality

- the business wants to maximize SH value

Question 2

what makes a cost/revenue relevant?

Answer 2

1) future
2) differential
3) cash-flow

Question 3

which kinds of costs are not relevant?

Answer 3

• non-differential
• sunk cost
• non-cash

Question 4

what is a limitation to RC?

Answer 4

business may not consider qualitative characteristics relating to a decision

Question 5

what tools can we use when considering qualitative characteristics?

Answer 5

• PESTEL

- Porter’s 5 Forces

Question 6

from where can we get materials?

Answer 6

1) warehouse (on hand)
2) purchase from supplier
3) cutting back production

Question 7

which costing method do we assume usually?

Answer 7

variable costing

Question 8

when calculating CM for limiting factors, what do we exclude?

Answer 8

the cost of the limiting factor, unless fixed, because then it will already be excluded

Question 9

from where can we source labour?

Answer 9

1) idle capacity
2) overtime
3) temporary staff
4) cutting back production

Question 10

what do we usually use to allocate overheads?

Answer 10

machine or labour hours

Question 11

from where can we get overheads if needed?

Answer 11

1) spare capacity
2) outsourcing production
3) cutting back production