Chapter 9 - Relevant Costing

Question 1

Does outsourcing have risks and if so why?

Answer 1

Yes because the manufacturer is dependent on the supplier for a quality product, delivered in a timely manner, and for a reasonable price

Question 2

What should manufacturers focus on for short-run product mix decisions?

Answer 2

Maximizing total contribution margins

Question 3

What are two broad categories that are never relevant?

Answer 3

Sunk costs - already incurred and can’t be changed

Future costs that don’t differ between alternatives

Question 4

Is book value a relevant cost in equipment replacement decisions?

Answer 4

No

Question 5

What are the relevant financial inputs for decision making?

Answer 5

The future cash flows that will differ between the various alternatives being considered

Question 6

What are the relevant costs?

Answer 6

One that differs in total between the alternatives

Question 7

What are qualitative considerations?

Answer 7

Impact on regular customers
Regular customers demanding same price
Capacity to produce extra units
Losing regular customers

Question 8

Contribution margin =

Answer 8

selling price - variable costs

Question 9

How is the contribution margin maximized?

Answer 9

By emphasizing the products with the greatest contribution margin per unit