Chapter 23 Relevant Costing for Managerial Decisions

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?
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
______________ costs, also called differential costs, are the additional costs incurred if a company purses a certain course of action.
incremental
When making keep or replace equipment decisions, management should consider the:
trade-in allowance on the old equipment
operating cost of the new equipment
operating cost of the old equipment
The decision rule for segment elimination is to consider eliminating a segment if the segment revenues are less than the segment _______________ expenses.
avoidable
When making additional business decisions, management should considered:
incremental costs, incremental revenues, existing sales, available capacity
When making scrap or rework decisions, management should consider:
revenue from selling defective units as scrap, incremental costs, lost profit on making and selling new units while reworking defective units
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:
highest contribution margin per unit of scarce resources
Relevant ____________________ refer to the additional or incremental revenues generated by selecting a particular course of action over another.
benefits
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:
sell as is because processing further will reduce in come by $1000
A (n) _________________ cost a rises from a past decisions, cannot be avoided or changed, and is irrelevant to future decisions.
sunk
List the steps of the decision making process with the first step on top
Define task and goal, identify alternative actions, collect relevant information, select course of action, analyze and assess decision.
In make or buy decision , management should consider:
products quality available, capacity, incremental costs, employee morale.
A(n) ________________ cost is the potential benefit lost by taking a specific action when two or more alternative choices are available.
opportunity
When making sell or process decisions, management should consider:
revenue from selling as is, revenue from selling