Relevant Costing and Linear Programming

Question 1

Characteristics of a Relevant Cost

3

Answer 1

• Future
• Different under alternatives
• Avoidable

Question 2

Usually

Variable Cost - relevant or irrelevant?
Fixed Cost - relevant or irrelevant?

Answer 2

Variable cost - usually relevant

Fixed cost - usually irrelevant (sunk cost) unless they become avoidable

Question 3

Total Analysis vs Differential Analysis

Answer 3

Total
- old profit vs new profit
- relevant costing dont want this method

Differential
- only the changes

Question 4

Objective of a Business

Answer 4

Maximize profit
- maximize revenue
- minimize expense

Question 5

Types of Decision in Relevant Costing

Make or Buy (outsourcing)

Answer 5

• choose lower cost
• FC usually irrelevant
• opportunity cost is relevant

Maximum Cost = all relevant cost (+ opportunity cost)

Question 6

Types of Decision in Relevant Costing

Accept or Reject a Special Order

Answer 6

• revenue > cost
• FC are usually irrelevant

Minimum Selling Price
- Full Capacity (sold out) - Regular SP
- Excess Capacity (unsold units) - Unit VC

Question 7

Types of Decision in Relevant Costing

Continue or Shutdown a Segment

Answer 7

• revenue > cost
• FC are usually irrelevant

FC classified into
- traceable = relevant
- common = allocated to other branch

Segment Margin
- CM less Traceable FC
- Continue if Positive, Shutdown if Negative

Shutdown Point
- FC less SDC / UCM
- SDC is unavoidable
- Continue if above, Shutdown if below

Question 8

Types of Decision in Relevant Costing

Sell or Process Further

Answer 8

• revenue > cost
• Joint cost are ALWAYS irrelevant
• SELL = sales value at splitoff
• PROCESS = Final sales value less processing cost

Question 9

Types of Decision in Relevant Costing

Scrap or Rework

Answer 9

• revenue > cost
• Carrying value are ALWAYS irrelevant

Question 10

Types of Decision in Relevant Costing

Best Product Combination

Answer 10

allocate limited resources to product from highest to lowest CM per unit of limited resources

Question 11

Linear Programming

Answer 11

• Multiple constraints
• Upgraded version of best possible combination

Question 12

Steps in Linear Programming

OCSC

Answer 12

1. Objective Function
2. Constraint Functions
3. Solutions feasible
4. Choice

Question 13

Objective Function

Answer 13

max or min (ex. Z = 3A + 4B)

Question 14

Constraint Functions

Answer 14

• Function 1 (ex. 2A + 5B < 120)
• Function 2 (ex. 4A + 2B < 80)
• Equate A or B as 0 in both functions
• Last is add the 2 functions and eliminate either A or B to get their value

Question 15

Solutions feasible

Answer 15

this pertains to the vertices of the graph