
Concept explainers
Concept Introduction:
Relevant or avoidable costs and Irrelevant or unavoidable costs –
The major decisions that a business has to take during its operations include dropping of a product, elimination of a segment, buy or make a product, to sell at scrap or rework on the product, to accept special offers etc. All these decisions are taken on the basis of the costs involved. There are two types of costs –
1. Relevant costs or avoidable costs – these costs can be defined as the costs that can be avoided if we choose over option over the other. Example of relevant costs are, direct material, direct labor, avoidable fixed costs etc.
2. Irrelevant costs – these costs can be defined as the costs that cannot be avoided in any of the options available or the costs which have been already incurred like sunk costs. Examples of irrelevant costs are unavoidable fixed costs, or the costs which have been already incurred.
Requirement 1
To identity:
Each cost in the income statement as either relevant or irrelevant to Summer Fun’s decision.
Requirement 2
To prepare:
A differential analysis to determine whether Summer Fun should accept this special sales order or not
Requirement 3
To identity:
Long-term factors to be considered in deciding whether to accept the special sales order or not.

Want to see the full answer?
Check out a sample textbook solution
Chapter 25 Solutions
Horngren's Accounting, The Financial Chapters, Student Value Edition (11th Edition)
- Sharon Mars, a recent graduate of Bell's accounting program, evaluated the operating performance of Carla Vista Company's six divisions. Sharon made the following presentation to Carla Vista's board of directors and suggested the Percy Division be eliminated. "If the Percy Division is eliminated," she said, "our total profits would increase by $25,300. The Other Five Divisions Percy Division Total Sales $1,663,000 $100,900 $1,763,900 Cost of goods sold 978,400 76,500 1,054,900 Gross profit 684,600 24,400 709,000 Operating expenses 528,500 49,700 578,200 Net income $156,100 $(25,300 ) $130,800 In the Percy Division, cost of goods sold is $60,100 variable and $16,400 fixed, and operating expenses are $29,100 variable and $20,600 fixed. None of the Percy Division's fixed costs will be eliminated if the division is discontinued. Is Sharon right about eliminating the Percy Division? Prepare a schedule to support your answer. (Enter negative amounts using either a negative sign preceding the…arrow_forwardWhat were total sales for the year on these financial accounting question?arrow_forwardGet correct answer this financial accounting questionarrow_forward
- Oriole Company incurs a cost of $34 per unit, of which $19 is variable, to make a product that normally sells for $59. A foreign wholesaler offers to buy 5,200 units at $31 each. Oriole will incur additional costs of $1 per unit to imprint a logo and to pay for shipping. Compute the increase or decrease in net income Oriole will realize by accepting the special order, assuming Oriole has sufficient excess operating capacity. (Enter negative amounts using either a negative sign preceding the number (e.g., -45) or parentheses (e.g., (45)).) Revenues $ Costs Net income $ Reject Accept Increase (Decrease) $ $ Should Oriole Company accept the special order? $ $ Oriole Company should ▾ the special order.arrow_forwardPlease give me correct answer this general accounting questionarrow_forwardNeed help with this accounting question not use ai please don'tarrow_forward
- Pharoah Street Inc. makes unfinished bookcases that it sells for $59. Production costs are $38 variable and $10 fixed. Because it has unused capacity, Pharoah Street is considering finishing the bookcases and selling them for $73. Variable finishing costs are expected to be $6 per unit with no increase in fixed costs. Prepare an analysis on a per unit basis showing whether Pharoah Street should sell unfinished or finished bookcases. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Sell Sales price per unit $ $ Cost per unit Variable Fixed Total Process Further Net Income Increase (Decrease) $ Net income per unit $ $ $ The bookcasesarrow_forwardPlease Provide Solution Of this Accounting Question Need Answer For All Questionsarrow_forwardSolve this Problem With Accounting methodarrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





