ACC 604 ACC604 Chapter 7 Homework Answers (National University)

ACC 604 ACC604 Chapter 7 Homework Answers (National University)


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ACC 604 ACC/604 ACC604 Homework Chapter 7 Solutions (National University)

Chapter Seven

1. What is a relevant cost?

2. Define the following terms: incremental cost, opportunity cost, and sunk cost.

3. Are variable costs always relevant costs? Explain.

4. “Sunk costs are easy to spot—they’re the fixed costs associated with a decision.” Do you agree? Explain.

5. “Variable costs and differential costs mean the same thing.” Do you agree? Explain.

6. “All future costs are relevant in decision making.” Do you agree? Why?

7. Prentice Company is considering dropping one of its product lines. What costs of the product line would be relevant to this decision? What costs would be irrelevant?

8. “If a product is generating a loss, then it should be discontinued.” Do you agree? Explain.

9. What is the danger in allocating common fixed costs among products or other segments of an organization?

10. How does opportunity cost enter into a make or buy decision?

11. Give at least four examples of possible constraints.

12. How will relating product contribution margins to the amount of the constrained resource they consume help a company maximize its profits?

13. Define the following terms: joint products, joint costs, and split-off point.

14. From a decision-making point of view, should joint costs be allocated among joint products?

15. What guideline should be used in determining whether a joint product should be sold at the split-off point or processed further?

16. Airlines sometimes offer reduced rates during certain times of the week to members of a businessperson’s family if they accompany him or her on trips. How does the concept of relevant costs enter into the decision by the airline to offer reduced rates of this type?

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