Podcast
Questions and Answers
What type of costs should be considered when making a decision?
What type of costs should be considered when making a decision?
- All costs, including sunk and committed costs
- Only incremental costs and opportunity costs (correct)
- Only future costs
- Only cash costs
What is an opportunity cost?
What is an opportunity cost?
- A benefit gained from a decision
- A committed cost that is already incurred
- A sunk cost that cannot be avoided
- A cost incurred by taking an alternative decision (correct)
Which of the following is a non-relevant cost?
Which of the following is a non-relevant cost?
- An incremental cost
- A future cost
- A sunk cost (correct)
- A cash cost
Why is it important to identify relevant and non-relevant costs?
Why is it important to identify relevant and non-relevant costs?
What should be calculated when the supply of a key resource is limited?
What should be calculated when the supply of a key resource is limited?
Which of the following decisions requires the identification of relevant and non-relevant costs?
Which of the following decisions requires the identification of relevant and non-relevant costs?
What is a relevant revenue in short-term decision making?
What is a relevant revenue in short-term decision making?
Which of the following is an example of an opportunity cost?
Which of the following is an example of an opportunity cost?
What is a sunk cost in short-term decision making?
What is a sunk cost in short-term decision making?
Which of the following is a non-relevant cost for decision-making purposes?
Which of the following is a non-relevant cost for decision-making purposes?
What is a committed cost in short-term decision making?
What is a committed cost in short-term decision making?
Which of the following is a characteristic of a relevant cost?
Which of the following is a characteristic of a relevant cost?
What is the allocated charge to cover office costs on the Rugby World Cup contract?
What is the allocated charge to cover office costs on the Rugby World Cup contract?
When deciding whether to make or buy components, which of the following costs can be ignored?
When deciding whether to make or buy components, which of the following costs can be ignored?
What is an example of a sunk cost?
What is an example of a sunk cost?
Which of the following is an opportunity cost?
Which of the following is an opportunity cost?
What is an example of a committed cost?
What is an example of a committed cost?
Which of the following is not a relevant cost in the make or buy decision?
Which of the following is not a relevant cost in the make or buy decision?
Study Notes
Short-term Decision Making
- Relevant costs include future, cash, and incremental expenses, as well as opportunity costs, which are the benefits lost by taking an alternative decision.
Relevant Revenues and Costs
- Relevant revenue: results from a specific management decision and affects the future cash position of the business by receiving incremental revenue.
- Relevant cost: results from a specific management decision and affects the future cash position of the business by incurring incremental costs.
- Non-relevant revenue or costs: remain unchanged following a specific management decision.
Types of Non-Relevant Costs
- Sunk cost: has already been spent and is not a relevant cost as it will not change as a result of a management decision.
- Committed cost: has to be paid for, whether or not management makes a specific decision.
- Allocated cost: a non-relevant cost, such as an allocated charge to cover office costs.
Make or Buy Decision
- Only relevant costs need to be considered.
- Revenue is the same in both cases, so it does not need to be taken into account.
- Non-manufacturing overheads (allocated costs) can be ignored.
Non-Manufacturing Overheads
- Salaries and fringe benefits of selling, general and administrative personnel.
- Rent, property taxes, utilities for the space used by non-manufacturing functions.
- Insurance for areas outside of the factory.
- Interest on business loans.
- Marketing and advertising.
- Depreciation and maintenance of equipment and buildings outside of manufacturing.
- Supplies for the offices.
Site or Product Closure
- Decisions should be based on contribution analysis.
- Profitability vs. contribution analysis: Mumbai, Delhi, Calcutta sales revenue and costs.
Class Exercises
- Review exercises/quizzes from previous classes.
- Complete additional exercises on classes 2, 3, and 4.
- Attend class to ask questions and do additional exercises.
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Description
This quiz assesses your understanding of management accounting principles in short-term decision making. It covers the relevance of costs, make-or-buy decisions, product prioritization, process upgrades, and discontinuation of products or locations. Test your knowledge of management accounting concepts and their applications.
