AFM102 Chapter Notes - Chapter 12: Management Accounting

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lemonbeetle804

16 Jun 2018

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM102

Professor

Jie Joyce Tian

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Chapter 12

Relevant Cost: A cost that differs among the alternatives in a particular decision

and will be incurred in the future. In managerial accounting, this term is

synonymous with avoidable cost and differential cost.

Avoidable Cost: Any cost that can be eliminated (in whole or in part) by choosing

one alternative over another in a decision-making situation. In managerial

accounting, this term is synonymous with relevant cost and differential cost.

Vertical Integration: The involvement by a single company in more than one of

the steps of the value chain, from production of basic raw materials to the

manufacture and distribution of a finished product.

Joint Products: Two or more items that are produced from a common input.

Joint Product Costs: Costs that are incurred up to a split-off point in producing

joint products.

Split-off Point: That point in the manufacturing process where some or all of the

joint products can be recognized as individual products.

Constraint: A limitation under which a company must operate (such as limited

machine time available or limited raw materials available) that restricts the

opay’s aility to satisfy dead for its produts or servies.

Theory of Constraint: A management approach that emphasizes the importance

of managing constraints.

Profitability Index: CM per unit divided by quantity of constrained resource

required per unit.

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Document Summary

Relevant cost: a cost that differs among the alternatives in a particular decision and will be incurred in the future. In managerial accounting, this term is synonymous with avoidable cost and differential cost. Avoidable cost: any cost that can be eliminated (in whole or in part) by choosing one alternative over another in a decision-making situation. In managerial accounting, this term is synonymous with relevant cost and differential cost. Vertical integration: the involvement by a single company in more than one of the steps of the value chain, from production of basic raw materials to the manufacture and distribution of a finished product. Joint products: two or more items that are produced from a common input. Joint product costs: costs that are incurred up to a split-off point in producing joint products. Split-off point: that point in the manufacturing process where some or all of the joint products can be recognized as individual products.

Related Questions

MULTIPLE CHOICE:

1. Which of the following is never considered in incrementalanalysis?

A. Incremental revenue

B. Sunk costs

C. Incremental profit

D. Differential costs

2. When deciding between two alternatives, the preferredalternative always has:

A. No opportunity costs

B. Greater revenues than the other alternatives

C. Less expense than the other alternatives

D. Greater incremental profit than the other alternatives

3. A company is trying to decide whether to keep or drop thesporting goods department in its department store. If the segmentis dropped, the manager will be fired. The managerâs salary, inrelation to the decision ti keep or drop the sporting department,is:

A. Avoidable and therefore relevant

B. Not avoidable and therefore relevant

C. Sunk and therefore not relevant

D. The same for all alternatives and therefore not relevant

4. A product line should be dropped when:

A. It has a negative contribution margin

B. Its avoidable fixed cost are greater than its contributionmargin

C. There will be a positive change in income if the product lineis dropped

D. All of above

5. Joint cost are:

A. The cost of the common inputs for joint products

B. Greater when there are more joint products

C. Unnecessary if the accounting system is moresophisticated

D. Only used when there are no opportunity costs involved in thedecision

tanduck521

General Chemical Company (GCC) manufactures two products as partof a joint process: A1 and B1. Joint costs up to the split-offpoint total $21,000. The joint costs are allocated to A1 and B1 inproportion to their relative sales values. At the split-off point,product A1 can be sold for $41,200, whereas product B1 can be soldfor $61,800. Product A1 can be processed further to make productA2, at an incremental cost of $37,000. A2 can be sold for $84,000.Product B1 can be processed further to make product B2, at anincremental cost of $47,000. B2 can be sold for $94,000.

17.

Required information

Joint costs allocated to product A1total:

$8,400.

$12,600.

$10,500.

$21,000.

18.

Required information

Joint costs allocated to product B1total:

$8,400.

$12,600.

$10,500.

$21,000.

19.

Required information

The net change in operating incomeresulting from a decision to manufacture product A2 is:

$42,800 (increase).

$5,800 (decrease).

$5,800 (increase).

$37,000 (increase).

20.

Required information

The net change in operating incomeresulting from a decision to manufacture product B2 is:

$14,800 (increase).

$14,800 (decrease).

$47,000 (decrease).

$32,200 (increase).

bronzegrasshopper758

NESA corporation manufactures two products, A and B, from ajoint process. It costs NESA $500,000 in a joint process to produce3,000 units of A and 2000 units of B. Both products can be sold athte split-off point or they can be processed fruther to copletion.The company will incur separable costs of $40 per units for A and$60 for B to process further. A and B can be sold for $160 and$200, respectively, at completion.

Required

a)What is the amount of separable costs assigned to products Aand B assuming that joint costs are allocated using the netrealizable value method?

b) What is the amount of joint costs assigned to products A andB assuming that joint costs are allocated using the physical unitsmethod?

c) What is the amount of total costs assigned to products A andB assuimng that joint costs are allocated uisng the physical unitsmethod?

d) should product A be sold at the split-off point or processedfurther assuming that it can be sold for $110 at split-off? Justifyanswer with numbers

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AFM102 Chapter Notes - Chapter 12: Management Accounting

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