CHAPTER 19 Flashcards
Joint Products
Two or more products that are produced simultaneously from the one production process.
Split off Point
Stage of production process where the joint products are identifiable
Joint costs
All manufacturing costs incurred in the production of joint products up to the slit off point.
Seperable costs
Identified to individual products - incurred after the split of point.
By -products
Joint product with very little value when compared to other joint products
Relative Sales Value Method
Base allocation in proportion to relative sales value of each product at the split off point
Physical Units Method
Base allocation on relative proportions of some physical characteristics e.g. weight of the products at the split off point.
Constant Gross Margin Method
Joint costs are allocated to joint products so that the gross margin of the products is identical.
The Management Accountants role in Decision Making
- Provide relevant information to managers to assist in decision making.
- Management accountants are often members of cross functional teams.
- Model of the decision making process.
Qualitative decision characteristics
the factors relevant to a decision that cannot be expressed effectively in numerical terms.
Tactical decisions
decisions that do not require larger increases or decreases in capacity related resources and can be changed quickly.
Long term decisions
decisions that tend to be more strategic in nature, and involve large increases or decreases in capacity related resources.
Quantitative Information
expressed in numeric terms.
Qualitative information
cannot be expressed effectively in numerical terms.
Relevant information
information that differs between alternative courses of actions and is future oriented and timely.
Timely information
information that is available in time to be used in the decision making process.
Importance of providing relevant information
-Generating information is a costly process.
- Supplying irrelevant data to mangers can lead to a waste of managerial resources.
- Information overload decreases the effectiveness of decision making.
Unique Decisions
-Arise infrequently or only once.
- relevant info will be often be found inside and outside the organisation.
Repetitive decisions
-Made at regular or irregular intervals.
- May draw on a lot of historical data.
- Relevant info should be readily available.
Sunk Costs
-Already incurred in the past therefore irrelevant to the decision.
Irrelevant future costs and benefits
-do effect future cash flows but do not differ between alternatives
-irrelevant to the decision
opportunity Cost
The potential benefit given up when the choice of one action precludes a different action, relevant to the decision
Out of Pocket Costs
The incremental costs incurred if a particular course of action is selected, relevant to the decision
Avoidable Costs
Costs that will not be incurred in the future if a particular decision is made.
Unavoidable costs
Costs that will continue to be incurred no matter which decision alterative is chosen, irrelevant to the decision
Accept or Reject a Special Order
- Whether or not to supply a customer with a single, one off order.
- Consider whether spare capacity can be used to meet special order.
-If spare capacity is not available, meeting the order will require using capacity that is usually used for regular products.
Accept or Reject Special Order Considerations:
- Is there a one off decsion or does it have long term potential?
- are there any adverse effects on regular business
Qualitative Factors?
Make or Buy a product
An organisation chooses to produce or purchase the product from a supplier
consider avoidable v unavoidable costs.
opportunity costs are often relevant.
Make or Buy a product Considerations:
-Treat fixed costs carefully
-Quality of the purchased product
- Delivery responsiveness, technical capabilities, labour relations and financial stability of the supplier.
-ability of the supplier to respect confidential information
