MA 3 Flashcards
Define relevant costs.
Relevant costs are future costs that differ among competing decision alternatives.
Define irrelevant costs.
Irrelevant costs are costs that do not differ among competing decision alternatives.
What are sunk costs?
Sunk costs are costs resulting from past decisions that cannot be changed. They are never relevant.
What is disposal value?
Disposal value is the cash amount an old asset can be sold for when a new asset is purchased.
What is salvage value?
Salvage value is the cash amount an asset will bring at the end of its useful life if held to that time.
Define opportunity cost.
Opportunity cost is any benefit forgone as a result of rejecting one alternative in favour of another. It is always relevant.
What is differential analysis?
Differential analysis focuses on future costs that differ between alternative actions, simplifying decision-making.
Explain special orders.
- Special orders involve a one-time purchase at a reduced price
- Relevant elements include sales revenue, variable production costs, and additional incurred costs.
What is outsourcing?
Outsourcing refers to procuring services or products from an external source, often for cost efficiency.
Define joint products.
Joint products are two or more products simultaneously produced by a single process from common inputs.
What is a bottleneck?
A bottleneck is a constrained resource (e.g., capacity or labour) that restricts a company’s ability to meet demand.
What are sunk costs in joint product decisions?
Sunk costs incurred before the split-off point in joint production are never relevant to decisions.
How to maximise profits with constrained resources?
Prioritise products with the highest contribution margin per unit of the constrained resource.
