Podcast
Questions and Answers
What is one of the primary functions of budgeting in an organization?
What is one of the primary functions of budgeting in an organization?
What is the relevant cost to consider when deciding whether to outsource a product?
What is the relevant cost to consider when deciding whether to outsource a product?
Which of the following statements is TRUE for 'sell-or-process-further decisions' in joint costing?
Which of the following statements is TRUE for 'sell-or-process-further decisions' in joint costing?
What is a limitation of the sequential method in joint costing?
What is a limitation of the sequential method in joint costing?
Signup and view all the answers
What is the primary objective of budgeting in an organization?
What is the primary objective of budgeting in an organization?
Signup and view all the answers
What is the main consideration when deciding whether to outsource a product or produce it in-house?
What is the main consideration when deciding whether to outsource a product or produce it in-house?
Signup and view all the answers
What is a characteristic of joint costing?
What is a characteristic of joint costing?
Signup and view all the answers
Which of the following is NOT a function of budgeting?
Which of the following is NOT a function of budgeting?
Signup and view all the answers
What is the purpose of establishing benchmarks in budgeting?
What is the purpose of establishing benchmarks in budgeting?
Signup and view all the answers
What is a key consideration in 'sell-or-process-further decisions' in joint costing?
What is a key consideration in 'sell-or-process-further decisions' in joint costing?
Signup and view all the answers
Study Notes
International Outsourcing and Decision Making
- Troy Instruments uses 10 units of Part Number S1798 monthly, with a total manufacturing cost of $22,400
- Direct materials cost: $4,000
- Materials handling cost: $400 (10% of direct materials cost)
- Direct manufacturing labor cost: $6,000
- Indirect manufacturing cost: $12,000 (200% of direct labor cost)
- If Troy purchases S1798 from Duncan Supply, the unit cost would decrease by $3,700
Decision Models and Performance Evaluation
- Decision models and performance evaluation models may differ due to:
- Different time frames
- Accounting systems enabling separate tracking of decisions
- Accrual accounting method incorporating irrelevant costs
- Top management's unawareness of desirable alternatives not chosen by subordinate managers
Relevant Information for Decision Making
- Relevant information for decision making excludes:
- Past costs (not relevant when making decisions)
- Significant past investment amounts (not relevant to decision making)
- Sunk costs (not recoverable and hence irrelevant)
- Relevant information includes:
- Expected future revenues and total future costs
- Differences in expected future revenues and total future costs between alternatives
- Not all future revenues and expenses are relevant (only those affected by the decision)
Budgeting and Its Role
- Budgeting:
- Provides an opportunity to reevaluate existing activities and evaluate new ones
- Compels managers to think ahead and formalize planning responsibilities
- Aids in communicating objectives to units and coordinating actions across the organization
- Provides benchmarks to evaluate subsequent performance
Outsourcing and Excess Capacity
- If a company has excess capacity, the most it would pay for buying a product it currently produces (outsourcing) is the total variable cost of producing the product
Joint Costing and Sell-or-Process-Further Decisions
- In joint costing, joint costs incurred before the split-off point are not relevant in deciding whether to process the product further
- Separable costs incurred before the split-off point are irrelevant in deciding whether to process the product further
- The cost difference between alternatives of selling products or processing further is relevant
- Joint costs and separable costs are not relevant in sell-or-process-further decisions
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Related Documents
Description
This quiz is about calculating the total cost of producing Part Number S1798 by Troy Instruments, considering direct materials, materials handling, direct labor, and indirect manufacturing costs.
