Ql:The costs listed below relate to a variety of different decision situations.CostUnavoidable fixed overheadDecision1Eliminate an unprofitable segment2Direct laborMake or buyEquipment replacementSell or process furtherAccepting a special order3Original cost of old equipmentJoint production costsOpportunity cost45Segment manager's salaryCost of new equipmentIncremental production costsEliminate an unprofitable segment(manager will be terminated)Equipment replacementSell or process further678Equipment replacement (the amountof materials required does notchange)Purchase or lease a building9Direct materials10Rent expenseInstructionsFor each cost listed above, indicate if it is relevant or not to the related decision. For thosecosts determined to be irrelevant, briefly explain why

Explanation: 1. The relevant costs are those costs that will have an impact on decision making and…

OI: The costs listed below relate to a variety of different decision situations. Decision Eliminate an unprofitable segment Make or buy Equipment replacement Sell or process further Accepting a special order Cost 1 Unavoidable fixed overhead 2 Direct labor 3 Original cost of old equipment Joint production costs Opportunity cost 4 5 Eliminate an unprofitable segment (manager will be terminated) Equipment replacement Sell or process further 6. Segment manager's salary Cost of new equipment Incremental production costs Equipment replacement (the amount of materials required does not change) Purchase or lease a building 9 Direct materials 10 Rent expense Instructions For each cost listed above, indicate if it is relevant or not to the related decision. For those costs determined to be irrelevant, briefly explain why 670

OI: The costs listed below relate to a variety of different decision situations. Decision Eliminate an unprofitable segment Make or buy Equipment replacement Sell or process further Accepting a special order Cost 1 Unavoidable fixed overhead 2 Direct labor 3 Original cost of old equipment Joint production costs Opportunity cost 4 5 Eliminate an unprofitable segment (manager will be terminated) Equipment replacement Sell or process further 6. Segment manager's salary Cost of new equipment Incremental production costs Equipment replacement (the amount of materials required does not change) Purchase or lease a building 9 Direct materials 10 Rent expense Instructions For each cost listed above, indicate if it is relevant or not to the related decision. For those costs determined to be irrelevant, briefly explain why 670

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Manufacturing Decisions Whenever the units manufactured differ from the units sold, finished goods inventory is affected. In analyzing operating income, such increases and decreases could be misinterpreted as operating efficiencies or inefficiencies. Each decision-making situation should be carefully analyzed in deciding whether absorption or variable costing reporting would be more useful. All costs are controllable in the long run by someone within a business. For a given level of management, costs may be controllable costs or noncontrollable costs. The production manager for Saxon, Inc. is worried because the company is not showing a high enough profit. Looking at the income statements on the Absorption Statement and the Variable Statement, he notices that the operating income is higher on the absorption cost income statement. He is considering manufacturing another 10,000 units, up to the company’s capacity for manufacturing, in the coming year. He reasons that this will boost…
Throughput costing • Treats all cost as period cost except for direct materials • Is very suitable for companies where labor and overaged are variable cost • Results in higher income than does variable costing when production exceeds sales • None of the above
The opportunity cost of making a component part in factory with excess capacity for which is no alternative use is: A. Zero B. Total production costs of the component C. Total variable cost of the component D. Fixed manufacturing costs of the component
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Question 9 Which of the following is NOT normally associated with activity-based costing? A Improved decision-making and pricing B Multiple cost drivers C Reduction of non-value-adding costs D Activity cost pools E I do not wish to answer this question. F High direct labour costs relative to manufacturing overhead costs
TRUE OR FALSE a, A cost that is traceable to a segment through activity-based costing is always an avoidable cost for decision making. b. One way to increase the effective utilization of a bottleneck is to reduce the number of defective units. c. Two or more products that are produced from a common input are known as joint products. d. If the salvage value of equipment at the end of a project is highly uncertain, the salvage value should be ignored in capital budgeting decisions. - e. A cost that is traceable to a segment through activity-based costing is always an avoidable cost for decision making. f. Eliminating nonproductive processing time is particularly important in a bottleneck operation. g. In a decision to drop a product, the product should be charged for rent in proportion to the space it occupies even if the space has no alternative use and the rental payment is unavoidable.
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Fixed manufacturing overhead is included in product costs under: absorptions costing variable costing optionA yes yes option B no no option C no yes option D yes no Option A Option B Option C Option D
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