Relevant_Costing_Flashcards_Brainscape
(35 cards)
What is a relevant cost?
A cost that occurs in the future and differs between alternatives.
What two characteristics define a relevant cost?
It must be a future cost and must differ between alternatives.
What is a sunk cost?
A past cost that cannot be changed or avoided; it is irrelevant.
What is an avoidable cost?
A cost that can be eliminated by choosing one alternative over another.
What is an opportunity cost?
The benefit foregone by choosing one alternative over another.
Are all fixed costs irrelevant?
No, only unavoidable fixed costs are irrelevant. Avoidable fixed costs are relevant.
Is depreciation a relevant cost?
No, because it is a non-cash, past-based cost.
What is a committed cost?
A future cost that cannot be avoided, and is therefore irrelevant.
What is a replacement cost?
The cost to replace an asset, which is relevant if the asset must be replaced.
What is the difference between qualitative and quantitative factors?
Quantitative factors can be measured numerically; qualitative factors relate to non-financial impacts.
What costs are relevant in a make-or-buy decision?
Avoidable production costs and the cost of buying; sunk and unavoidable costs are irrelevant.
What is a relevant cost in special order pricing?
Variable costs and any additional fixed costs; sunk and committed costs are not relevant.
In shutdown decisions, which costs are relevant?
Lost contribution and any costs saved by shutting down operations.
What is the key calculation in product mix decisions under limiting factors?
Contribution per unit of limiting factor.
In outsourcing decisions, what should be compared?
The total relevant cost of in-house production vs. the purchase cost from an external supplier.
How are relevant costs used in pricing decisions?
To ensure the price covers all avoidable costs and contributes to profit.
What is incremental cost?
The additional cost of selecting one alternative over another.
Are sunk costs relevant when choosing between two projects?
No, because they have already been incurred and cannot be changed.
What is the relevance of idle capacity in decision making?
It may reduce opportunity costs, making internal use more viable.
What non-financial factors might affect relevant costing decisions?
Customer satisfaction, employee morale, supplier reliability, etc.
How is relevant cost calculated in a make-or-buy question?
Add avoidable costs of making and compare to the buy price.
How do you calculate opportunity cost?
Value of the best alternative use of a resource given up.
What is the formula for contribution per unit of limiting factor?
Contribution per unit ÷ units of limiting factor required per unit.
How do you determine which product to prioritize under limiting factors?
Choose the product with the highest contribution per unit of limiting factor.
