To focus on the relevant revenues and costs associated with making specific decisions.
Where relevant means the costs change due to a different decision. If the cost doesn't change, it isn't relevant.
What is the primary characteristic of a cost that would make it relevant to a decision using marginal analysis?
If the cost can be traceable to the cost object involved in the decision, then it is probably relevant.
Which of the following are typically relevant costs or should be ignored when making a decision using marginal analysis? (1) direct costs, (2) sunk costs, (3) prime costs, (4) uncontrollable costs
(1) relevant, ties directly to the product
(2) ignore, already done and can't be changed
(3) relevant, ties directly to the product
(4) ignore, the manager can't change
Which of the following are typically relevant costs or should be ignored
when making a decision using marginal analysis? (1) incremental costs, (2)
opportunity costs, (3) avoidable costs, (4) unavoidable costs
(1) relevant
(2) depends
(3) relevant
(4) ignore
True/False: Marginal decisions are based solely on the financial impact.
False
Other factors including the impact on future orders, complexity, maintenance schedules, etc. must be considered.
What costs are considered when making a special order decision when the production facility is at (1) partial capacity, (2) full capacity
(1) only variable costs (all variable costs, not just manufacturing)
(2) variable plus opportunity costs which is the equivalent of the lost contribution margin from giving up production of the other product that is being (or could be) made
What costs are considered when making a make vs buy decision.
All variable costs (not just costs of manufacturing)
Any avoidable fixed manufacturing overhead
How would one determine the financial result of a sell or process further decision?
Ignore joint costs as sunk cost
Revenue of final product if processed further - Revenue at split-off = Incremental Revenues
Increments revenues - separable costs = result
If result (+), process
If result (-), sell at split off
Why is incremental revenue considered (instead of end-result revenue) when making a "sell or process further" decision?
You can already sell the product at the split-off amount. The incremental revenue is the gain you would make from further processing; thus, you compare the gain from further processing to the cost required to further process.
When making a "keep or drop a segment" decision, which costs are considered and why?
If a segment has unavoidable fixed costs, operation of the segment is at least providing revenue to help cover those fixed costs. Removing all of the revenue by d/c'ing the segment would then shift that fixed cost burden to the other segments.
If a segment has avoidable fixed costs, then look at the financial outcome on all segments in total if the revenues and avoidable fixed costs are eliminated.
When a multi-product plant operates at full capacity, managers should select products with the (a) highest individual unit contribution margin, or (b) high individual unit contribution margin of the constraining resource? Justify your answer.
(b)
A resource such as labor hours, machine hours, facilities, or materials will constrain further production when at capacity. The company cannot produce beyond their resources. The produce that maximizes resources while providing the greatest contribution margin should be selected.
When looking at a make-vs-buy decision, the cost of purchasing the units from an outside vendor is attributed to which accounting line item: (1) DM, (2) DL, (3) Manufacturing Overhead, (4) None of the above. What is the impact of this placement?
(1) Direct Materials
Any overhead costs (such as materials handling) attributable to direct materials must be considered in the decision.
