Lecture 12 - Product costing

Question 1

What are relevant and irrelevant costs? What are sunk costs (roughly)? (3)

Answer 1

Relevant
Future costs that differ among competing decision alternatives

Irrelevant
Future costs that DO NOT differ among competing decision alternatives

Sunk costs
Past costs

Question 2

What are outlay costs?
Give examples for relevant and irrelevant outlay costs.

Answer 2

Outlay costs typically refer to the initial expenses associated with a project or investment, including the purchase of assets or equipment.

Relevant outlay costs

• Conversion costs (Umbau)
• Cost of new machine
• Machine maintenance
• Inspection and adjustment costs

Irrelevant outlay costs

• Direct materials
• Selling and distribution
• Advertising
• Common outlay costs

Question 3

Name two qualitative considerations of special orders!

Answer 3

● Impact on regular customers
● Legal factors

Question 4

Name three reasons for outsourcing!

Answer 4

● Reduce time to market
● Reduce operating costs
● Improve company focus

Question 5

What are opportunity costs?

Answer 5

The net benefit of the alternative