PLEASE ONLY ATTEMPT THIS PROBLEM IF YOU ARE WILLING TO ANSWER EACH AND ALL QUESTIONS. IF YOU ARE NOT WILLING TO SOMEONE ELSE WILL BE.

Managerial Accounting

Chapter focus on: Differential Analysis and decision making

121

What is a relevant cost?

122

Define the following terms: incremental cost, opportunity cost, and sunk cost.

123

Are variable costs always relevant costs? Explain.

124

Sunk costs are easy to spottheyre the fixed costs associated with a decision. Do you agree? Explain.

125

Variable costs and differential costs mean the same thing. Do you agree? Explain.

126

All future costs are relevant in decision making. Do you agree? Why?

127

Prentice Company is considering dropping one of its product lines. What costs of the product line would be relevant to this decision? What costs would be irrelevant?

128

If a product is generating a loss, then it should be discontinued. Do you agree? Explain.

129

What is the danger in allocating common fixed costs among products or other segments of an organization?

1210

How does opportunity cost enter into a make or buy decision?

1211

Give at least four examples of possible constraints.

1212

How will relating product contribution margins to the amount of the constrained resource they consume help a company maximize its profits?

1213

Define the following terms: joint products, joint costs, and split-off point.

1214

From a decision-making point of view, should joint costs be allocated among joint products?

1215

What guideline should be used in determining whether a joint product should be sold at the split-off point or processed further?

1216

Airlines sometimes offer reduced rates during certain times of the week to members of a businesspersons family if they accompany him or her on trips. How does the concept of relevant costs enter into the decision by the airline to offer reduced rates of this type?