Relevant Costs and Decision Making 4.16 A. The fixed overhead cost will be the same regardless of which method Regina Corp goes. Based on the analysis of Yoklic‚ they will incur the additional cost of $6 per unit by purchasing the subassemblies versus manufacturing them. B. The $50‚000 that is saved by eliminating the fixed overhead reduces the cost for outsourcing. This will give Yoklic an overall $20‚000 savings for 5‚000 units by purchasing externally versus manufacturing internally
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Cost Accounting: A Managerial Emphasis Chapter 11 Decision Making and Relevant Information Copyright © 2013 Pearson Canada Inc. 11 - 1 Cost Accounting: A Managerial Emphasis Decision Model • The process of making a choice‚ often involving both quantitative and qualitative analyses • Quality of the choice depends upon the qualify of the information obtained – Perfect information is never available 1 Copyright © 2013 Pearson Canada Inc. 11 - 2 Cost Accounting: A Managerial Emphasis Decision
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Chapter 13 Relevant Costs for Decision Making Solutions to Questions 13-1 A relevant cost is a cost that differs in total between the alternatives in a decision. 13-2 An incremental cost (or benefit) is the change in cost (or benefit) that will result from some proposed action. An opportunity cost is the benefit that is lost or sacrificed when rejecting some course of action. A sunk cost is a cost that has already been incurred and that cannot be changed by any future decision. 13-3 No. Variable
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CHAPTER 13 SHORT-RUN DECISION MAKING: RELEVaNT COSTING 1 DISCUSSION QUESTIONS 1. Tactical decisions are short run in nature; they involve choosing among alternatives with an immediate or limited end in view. Strategic decisions involve selecting strategies that yield a long-term competitive advantage. 2. Depreciation is an allocation of a sunk cost. This cost is a past cost and will never differ across alternatives. 3. The salary of the supervisor of an assembly line with excess capacity
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CHAPTER 11 DECISION MAKING AND RELEVANT INFORMATION 11-16 (20 min.) Disposal of assets. 1. This is an unfortunate situation‚ yet the $75‚000 costs are irrelevant regarding the decision to remachine or scrap. The only relevant factors are the future revenues and future costs. By ignoring the accumulated costs and deciding on the basis of expected future costs‚ operating income will be maximized (or losses minimized). The difference in favor of remachining is $2‚000: (a) (b) Remachine Scrap
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SHORT-RUN TACTICAL DECISIONS The organizations strive to earn short-run profits. In making short-run decisions‚ not all cost and revenue data is relevant. The cost data relevant for decision-making is referred to as relevant costs and that which is not useful for decision-making is non-relevant costs. On the revenue side‚ the only relevant revenue is the incremental & differential revenue. Relevant and Non-Relevant Costs: 1. Future Costs and Sunk Costs (IR): A future cost is that cost yet to be incurred
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3.2 explain the calculation of unit costs and make pricing decisions using relevant information Pricing is depend on the unit costs‚ consumer capability and the breakeven analysis‚ To perform the breakeven analysis and to calculate the unit cost ‚we should consider about the two relevant costs. Those are fixed costs and variable costs. Fixed costs – Costs that will not change with in a period of time . ex- Machineries‚ Insurance. These are the essential costs that should be considered at the
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for an order for 2‚500 units of GX1. The company only makes GX1 to order and currently has no other orders in process. The production requirements for GX1 are as follows: Materials: Three types of material are used in production: Amount Cost Resale Current used per unit price value price to buy Material A 12kg £2.50 £1.00 £2.75 Material B 4kg £7.00 £5.50 £8.50 Material C 6kg - £6.50 - Material A is used extensively throughout the company’s range of products
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Relevant Costs Defined Relevant costs possess two characteristics: (1) They are future costs and (2) They differ across alternatives. All pending decisions relate to the future; accordingly‚ only future costs can be relevant to decisions. However‚ to be relevant‚ a cost must not only be a future cost but must also differ from one alternative to another. If a future cost is the same for more than one alternative‚ then it has no effect on the decision. Such a cost is irrelevant. The
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12 PRICING DECISIONS AND COST MANAGEMENT 12-1 The three major influences on pricing decisions are 1. Customers 2. Competitors 3. Costs 12-2 Not necessarily. For a one-time-only special order‚ the relevant costs are only those costs that will change as a result of accepting the order. In this case‚ full product costs will rarely be relevant. It is more likely that full product costs will be relevant costs for long-run pricing decisions. 12-3 Two examples of pricing decisions with a short-run
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