Final Exam Flashcards
(11 cards)
What is true about Cost and Revenue for RCA decision making?
Costs and revenues must:
- Be Future oriented
- Differ between alternatives
What is the primary focus of Relevent Cost Analysis?
Profit maximization (or cost minimization)
What additional factors must be considered during Relevent Cost Analysis?
Effects on long run profits.
Non-quantitative factors such as legal, ethical, and social ramifications.
What are Outlay Costs and what would make them relevent in Relevent Cost Analysis?
Outlay costs are out of pocket expenses.
They require future expenditures of cash or other resources.
To be relevant, they must differ between alternatives.
What are Sunk Costs and what would make them relevent to Relevant Cost Analysis?
Sunk costs are past costs.
They result from past decisions that cannot be changed. Sunk costs are NEVER relevant.
For example, the cost and book value of old machines are irrelevant.
What dilemna can be caused by Sunk Costs?
Managers may avoid disposing of old assets in order to avoid reporting a loss on the income statement, thus making the manager’s performance look bad.
What are Opportunity Costs with regards to Relevant Cost Analysis?
Any benefit foregone as a result of rejecting one alternative in favor of another.
Opportunity costs are ALWAYS relevant when making decisions among competing alternatives.
What is Disposal Value?
Amount of cash an old asset can be sold for at the time the new asset is purchased.
This is a relevant cash inflow.
What is the difference between product cost and period costs?
Product costs go to the balance sheet where period costs go to the income statement.
What are product costs?
Raw materials, plant depreciation, manufacturing supplies, direct labor costs, expired plant insurance, Production supervisors salaries, Plant maintenance, plant utilities, Plant office supplies use, production equipment rent
What are period costs?
non factory overhead costs, general & admin salaries, showroom depreciation, showroom insurance, president’s salary, showroom maintenance, non-factory office utilities, non-factory office rent.
