Relevant Costing / Incremental Analysis Flashcards
Relevant Costing
Provide list of Short-term decisions: (Dito lang iikot mga tanong sa board exam)
✓ Accept or reject a special order.
✓ Sell or process further.
✓ Make or buy.
✓ Retain or replace equipment.
✓ Continue or shut down a business segment.
✓ Choosing the best product combination.
✓ Utilization of scarce resources.
✓ Selecting a change in profit factors.
Relevant Costing
_____are future costs that are expected to be different under each alternative course of action.
Relevant Costs
Relevant Costing
increases (increments) or decreases
(decrements) in total costs that result from selecting one alternative instead of another.
Differential Costs
Relevant Costing
costs that will be saved or those that will not be incurred if a certain decision is made.
Avoidable Costs
Relevant Costing
the benefit lost by taking one action as opposed to another.
Opportunity Costs
Relevant Costing
refer to the non-recoverable costs incurred in the
past.
Sunk Costs
Relevant Costing
costs incurred in simultaneously processing or
manufacturing two or more products which are difficult to
identify individually as separate types of products until a
certain processing stage known as the point of separation or
split-off point.
Joint Costs
Relevant Costing
costs incurred beyond the split off
point as separated joint products are to be processed further.
Further Processing Costs
Relevant Costing
the earliest stage in the production where joint products can be recognized as distinct and separate
products.
Split-Off Point
Relevant Costing
usual costs that a company will continue even if it decides to discontinue or shutdown the operation of a company segment.
Shutdown Costs
Relevant Costing
A. General rule: For the cost to be Relevant, it must be___ and ____?
B. Variable and Fixed Cost relevant?
A.
1. Future
2. Differential (decremental/incremental)
B. Variable only. Unless avoidable yung fixed cost.
So General Rule, VC and FC (unavoidable only)
Relevant Costing
Concept to remember for Accept an order at a special price Relevant costing
- Bukod sa application general rule,
- Check mo din if:
a. With excess capacity (example 10 capacity na ginagawa but only 8k nagawa, so may 2k kang excess):
-General rule only (reason dito, wala kanaman ibang mabebentahan, so oks lang kahit atleast VC yung minimum price)
b. Wout excess capacity
-General Rule + opportunity cost (lost CM)
- forgone - yung mabebenta mo sana na order - which is CM!
-Kasi dito naman, may sure na mabebentahan ka
Relevant Costing
Concept to remember for Retain or replace equipment Relevant costing
- Apply mo lang General Rule
- Mahalaga dito to indendify if relevant or irrelevant ba sya
- Cost of original machine is Sunk Cost
- Cost of new machine is Future Relevant Cost
- Incremental cost to purchase new machine is Cost of New machine less salvage value
Relevant Costing
Concept for Continue or shut down a business segment.
How to compute Segment Margin?
- Apply padin general rule
- Sales
Less:VC & FC (Avoidable)
=Segment Margin
Then pag positve retain, pag negative eliminate
Relevant or Irrelevant?
Cost of an old car
Allocated common corporate costs
IR
