Ch 4, Module 4

Question 1

What does marginal analysis focus on?

Answer 1

relevant revunes and costs associated with a decision

Question 2

Define relevant revenues and costs

Answer 2

deemed to be relevant only if they change as a results of selecting different alternatives

can be either fixed or variable

relevant costs include specific traceability to cost objects that may change as a result of selecting different alternatives

Question 3

examples of relevant cots

Answer 3

• direct costs (traceable to a cost object)
• prime costs (DM or DL)
• discretionary costs (arising from periodic decisions by mtf to spend in areas unrelated to manufacturing)
• incremental costs (the additional cost incurred t oproduce an additional amount of the unit)
• opportunity cost (cost of foregoing the next best alternative)
• avoidable costs

Question 4

What are examples of irrelevant costs

Answer 4

• irrelevant (costs that don’t differ among alternatives
• sunk costs (costs that are unavoidable because they were incurred in the past and cannot be recovered as a result of a decision)
• uncontrollable costs
• unavoidable costs

Question 5

define special order

Answer 5

opportunities that require a firm to decide whether a specially priced order should be accepted

Question 6

What is the important thing to consider if there is no excess capacity available

Answer 6

opportunity cost!

Question 7

joint cost

Answer 7

costs of a single process that yields multiple products (i.e. the processing of a pig to produce ham, bacon, and pork chops)

Question 8

separable costs

Answer 8

costs incurred after the split-off point.

relevant to decisions!