Acct Ch 7

D. Fixed overhead

D. Always incremental costs

A. Sunk costs

A. Are incurred before the split off point

relevant

B. Sunk costs

A. Fixed overhead

False

B. Allocated common costs

B. Always incremental costs

A. Are incurred before the split off point

C. The data are misleading because the $6 allocated joint cost will be incurred even if the product is discontinued

D. Production of the product with the highest contribution margin per unit of the constrained resource

True

Differential costs and differential revenues are costs and revenues that differ between decision alternatives

To calculate the change in income that will result from dropping the product line. If income would increases then it should be dropped

Common costs which are incurred for the benefit of two or more products, such as the company president's salary, are not sunk because they are incurred in current and future periods. But they are still irrelevant because they usually do not differ among the decision alternatives.

The amount of joint cost allocated to a product under relative sales value method cannot exceed the product's sales value at the split-off point. Thus, products that make a positive contribution to covering joint cost will not look unprofitable.

The value of time in a bottleneck department is generally quite high and equal to the contribution margin of all throughput per hour. Therefore, you don’t want to “waste it” setting up equipment. Since more setups are required with small batch sizes, it is generally advisable to have larger batch sizes in bottleneck departments.

A bottleneck department is referred to as a drum because it “beats a rhythm” that coordinates the production in other departments.

(Sales value of A/ Total Sales value) x Joint Cost

(Physical measure of A/Total Physical Measure) x Joint cost