Chapter 23 Relevant Costing for Managerial Decisions – Flashcards

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question
A company produces two products . A sells for $25, has variable costs of $15, and requires 2 machine hours to produce. Product B sells for $35 had variable costs of $20, and requires 2 machine hours to produce. 40,000 machine hours are available. The company can sell all it can make of either product. Which statement is true?
answer
Product B should be produced because it will create greater profits CM per machine hr: Product A ($25-$25)/2=$5 CM per machine hr: B ($35-$20)/2-$7.50
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______________ costs, also called differential costs, are the additional costs incurred if a company purses a certain course of action.
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incremental
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When making keep or replace equipment decisions, management should consider the:
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trade-in allowance on the old equipment operating cost of the new equipment operating cost of the old equipment
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The decision rule for segment elimination is to consider eliminating a segment if the segment revenues are less than the segment _______________ expenses.
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avoidable
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When making additional business decisions, management should considered:
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incremental costs, incremental revenues, existing sales, available capacity
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When making scrap or rework decisions, management should consider:
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revenue from selling defective units as scrap, incremental costs, lost profit on making and selling new units while reworking defective units
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When production facilities are limited, the company should produce the mix that will not exceed demand and maximize the production of the product with the:
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highest contribution margin per unit of scarce resources
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Relevant ____________________ refer to the additional or incremental revenues generated by selecting a particular course of action over another.
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benefits
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A manufacturing company currently produces 1,000 units of a product at a cost of $5,000. The units sell for $7000. Alternatively, the company can process further to produce a refined product that will cost $4,000. The company should:
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sell as is because processing further will reduce in come by $1000
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A (n) _________________ cost a rises from a past decisions, cannot be avoided or changed, and is irrelevant to future decisions.
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sunk
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List the steps of the decision making process with the first step on top
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Define task and goal, identify alternative actions, collect relevant information, select course of action, analyze and assess decision.
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In make or buy decision , management should consider:
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products quality available, capacity, incremental costs, employee morale.
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A(n) ________________ cost is the potential benefit lost by taking a specific action when two or more alternative choices are available.
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opportunity
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When making sell or process decisions, management should consider:
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revenue from selling as is, revenue from selling
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