Which of the following is often not a differential cost?
D. Fixed overhead
Opporunity costs are
B. Always incremental costs
Which of the following costs should not be taken into consideration when making a decision?
A. Sunk costs
The joint costs incurred in a joint product situation
A. Are incurred before the split off point
Differential costs are sometimes referred to as ______________ costs
relevant
Which of the following costs should not be taken into consideration when making a decision?
A. Sunk costs
Which of the following is often not a differential cost?
C. Fixed overhead
Fixed costs are never incremental costs.
True or False
False
Which of the following is not relevant when considering whether or not to drop a product?
A. Allocated common costs
Opportunity costs are
B. Always incremental costs
The joint costs incurred in a joint product situation
A. Are incurred before the split off point
A joint products cost is $18, which includes $6 of allocated joint cost. Its sales price is $16. In this case
C. The data are misleading because the $6 allocated joint cost will be incurred even if the product is discontinued
According to the Theory of Constraints, optimizing use of a constraint requires
D. Production of the product with the highest contribution margin per unit of the constrained resource
Generally, parts should be inspected prior to being sent to a department that is a bottleneck.
True or False
True
What are differential costs and revenues?
Differential costs and differential revenues are costs and revenues that differ between decision alternatives
What is the proper approach to analyzing whether a product line should be dropped?
To calculate the change in income that will result from dropping the product line. If income would increases then it should be dropped
Give an example of a fixed cost that is not sunk but still irrelevant.
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.
Why is the relative sales value a more logical basis for allocating joint costs than physical quantity?
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.
Why are batch sizes generally larger in bottleneck departments?
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.
Why is a bottleneck department referred to as a drum in the Theory of Constraints?
A bottleneck department is referred to as a drum because it “beats a rhythm” that coordinates the production in other departments.
Formula: Relative sales value method, Joint cost allocated to product A
(Sales value of A/ Total Sales value) x Joint Cost
Formula: Physical quantity method, cost allocated to A
(Physical measure of A/Total Physical Measure) x Joint cost
