Week 3 (Relevant costing) Flashcards
consists of choosing among alternatives with an immediate or limited end in view
what is this ?
tactical decision making
are tactical decisions short or long run in nature ?
short run
bc tactical decisions tend to be short run in nature, does that mean they can’t have long run consequences ?
no they can have long run consequences
compare a handful of alternatives by analyzing the costs of each alternative. the “least cost” alternative is chosen
what is this ?
tactical decision making
is a cost that differs between alternatives
what is this ?
relevant cost
are all costs relevant to the decision ?
no
only what kind of costs should be considered in deciding which alternative to pick ?
relevant costs
a cost that can be eliminated, either in whole or in part, by choosing one alternative over another
what is this ?
avoidable costs
are avoidable costs always or never relevant ?
always relevant
what are examples of avoidable costs ?
- direct materials
- direct labor
- all variable costs
- some fixed costs
a cost that exists under all decision alternatives
what is this ?
unavoidable costs
are unavoidable costs always or never relevant ?
never relevant
What are examples of unavoidable costs ?
- some fixed costs
a cost that can not be directly linked to a product or activity. it is therefore assigned to the product or activity using some sort of arithmetic process
what is this ?
allocated costs
are allocated costs always or never relevant ?
never relevant
what are examples of allocated costs ?
- rent & administrative salaries
a cost that has been incurred and can not be recovered or ‘un-incurred’ by some future action. thus regardless of the alternative chosen, the cost can not be recovered
what is this ?
sunk costs
are sunk costs always or never relevant ?
never relevant
what are examples of sunk costs ?
- the original cost of a building is a sunk cost when you are trying to decide whether or not to sell the building five years later
a benefit given up by choosing one alternative over another
what is this ?
opportunity costs
are opportunity costs always or never relevant ?
always relevant
what are the 5 examples of tactical decisions ?
- make or buy
- keep or drop
- special orders
- sell or process further
- product mix
should a component part to the company’s product or service be produced internally or should the component part be purchased from an outside supplier (outsourcing) ?
what decisions is this ?
make or buy decision
the company must decide whether a segment of a business should be kept or eliminated
what decision is this ?
keep or drop decision
orders that are not part of a company’s regular sales.
are typically one time orders usually requested at a lower selling price than regular sales
what decision is this ?
special order decision
two or more products produced from the same raw material input
what is this ?
joint products
the point in the manufacturing process where each joint product can be recognized as a separate product
what is this ?
split-off point
costs incurred up to the split off point
what is this ?
joint costs
if a company produces and sells more than one product, how many of each type of product should it produce ?
should produce those products that have the highest contribution margin per unit of scarce resource
what happens when a company is faced with more than one resource constraint ?
use linear programming to determine the optimal mix of products
