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21 even though costs revenues and other factors do not vary among possible courses o 4298357

 

 

21. Even though costs, revenues, and other factors do not vary among possible courses of action, they may be relevant to a decision. 
 

 

22. Sunk costs have already been incurred and cannot be changed by future actions. 
 

 

23. The most common method to allocate joint costs is in proportion to the relative sales value of the products. 
 

 

24. After January 1, 2009, in order to be consistent with IASB Standards, U.S. GAAP now requires that borrowing costs on assets that require a substantial period to bring them to a marketable condition be expensed immediately. 
 

 

25. Differential costs are those that are the same among alternatives. 
 

 

26. Assuming that the MR Corporation has an inventory of 200 defective motors costing $450,000 to produce and $150,000 to repair, if the company receives an offer to purchase these motors for $325,000 before repairing them, the company's decision should be to sell the motors at the offered price. 
The $450,000 production costs are sunk costs and therefore irrelevant to the decision. The relevant costs are the repair costs of $150,000 compared to the offer to purchase for $325,000. Since the offer is more than the repair costs, the decision should be to sell the motors at the offered price.

 

 

27. Assuming that the MR Corporation has an inventory of 200 defective motors costing $450,000 to produce and $150,000 to repair, if the company receives an offer to purchase these motors for $100,000, the company's decision should be to sell the motors at the offered price. 
The $450,000 production costs are sunk costs and therefore irrelevant to the decision. The relevant costs are the repair costs of $150,000 compared to the offer to purchase for $100,000. Since the offer is less than the repair costs, the decision should be not to sell the motors at the offered price.

 

 

28. Direct material costs are always considered relevant costs in a make or buy decision. 
 

 

29. Opportunity costs are irrelevant in decision making. 
 

 

30. Nonfinancial considerations are relevant in decision making. 
 

 

31. Incremental revenue is relevant in decision making. 
 

 

32. Sunk costs are relevant costs when considering a special order. 
 

 

 

 

 

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