Week 3 (Relevant costing)

Question 1

consists of choosing among alternatives with an immediate or limited end in view
what is this ?

Answer 1

tactical decision making

Question 2

are tactical decisions short or long run in nature ?

Answer 2

short run

Question 3

bc tactical decisions tend to be short run in nature, does that mean they can’t have long run consequences ?

Answer 3

no they can have long run consequences

Question 4

compare a handful of alternatives by analyzing the costs of each alternative. the “least cost” alternative is chosen
what is this ?

Answer 4

tactical decision making

Question 5

is a cost that differs between alternatives
what is this ?

Answer 5

relevant cost

Question 6

are all costs relevant to the decision ?

Answer 6

no

Question 7

only what kind of costs should be considered in deciding which alternative to pick ?

Answer 7

relevant costs

Question 8

a cost that can be eliminated, either in whole or in part, by choosing one alternative over another
what is this ?

Answer 8

avoidable costs

Question 9

are avoidable costs always or never relevant ?

Answer 9

always relevant

Question 10

what are examples of avoidable costs ?

Answer 10

1. direct materials
2. direct labor
3. all variable costs
4. some fixed costs

Question 11

a cost that exists under all decision alternatives
what is this ?

Answer 11

unavoidable costs

Question 12

are unavoidable costs always or never relevant ?

Answer 12

never relevant

Question 13

What are examples of unavoidable costs ?

Answer 13

1. some fixed costs

Question 14

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 ?

Answer 14

allocated costs

Question 15

are allocated costs always or never relevant ?

Answer 15

never relevant

Question 16

what are examples of allocated costs ?

Answer 16

1. rent & administrative salaries

Question 17

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 ?

Answer 17

sunk costs

Question 18

are sunk costs always or never relevant ?

Answer 18

never relevant

Question 19

what are examples of sunk costs ?

Answer 19

1. 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

Question 20

a benefit given up by choosing one alternative over another
what is this ?

Answer 20

opportunity costs

Question 21

are opportunity costs always or never relevant ?

Answer 21

always relevant

Question 22

what are the 5 examples of tactical decisions ?

Answer 22

1. make or buy
2. keep or drop
3. special orders
4. sell or process further
5. product mix

Question 23

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 ?

Answer 23

make or buy decision

Question 23

the company must decide whether a segment of a business should be kept or eliminated
what decision is this ?

Answer 23

keep or drop decision

Question 24

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 ?

Answer 24

special order decision

Question 25

two or more products produced from the same raw material input
what is this ?

Answer 25

joint products

Question 26

the point in the manufacturing process where each joint product can be recognized as a separate product
what is this ?

Answer 26

split-off point

Question 27

costs incurred up to the split off point
what is this ?

Answer 27

joint costs

Question 28

if a company produces and sells more than one product, how many of each type of product should it produce ?

Answer 28

should produce those products that have the highest contribution margin per unit of scarce resource

Question 29

what happens when a company is faced with more than one resource constraint ?

Answer 29

use linear programming to determine the optimal mix of products