1. The following costs relate to a variety of decision settings Cost e overhead
ID: 2396116 • Letter: 1
Question
1. The following costs relate to a variety of decision settings Cost e overhead rtment 1. Allocated c 2. Cost of an old car 3. Direct materials 4.Salary of marketing manager Closing a money-losing Vehicle replacement Make or buy a product Project discontinuance; manager to be transferred elsewhere in the firm Purchase of a new home Plant closure 5, Home theater installation 6. Unavoidable fixed overhead 7. Research expenditures incurred last year, Product introduction to marketplace related to new product 8 S4 on advertising program Whether to promote product A or B with the $4 million Whether to discard the goods or sell them to a third-world coun 9.Manufactured cost of existig inventory Required Consider each of the nine costs listed and determine whether it is relevant or irrelevant to the decision cited. If the cost is irrelevant, briefly explain whyExplanation / Answer
1. Allocated corporate overhead will be incurred whether the money losing department is closed or not , as this will be allocated to the remaining departments.
Therefore the allocated corporate overhead is not relevant to the deicison of closingof a money-losing department.
2. Cost of an old car is not relevant to the decition ot vehicle replacement. The factors that are relevant are the cost of the new vehilce and the savage value of the old vehilce, if any.
3. Direct materials is relevant to the decision whether to make or buy a product, as raw material is neede to make a product
6. Unavoidable fixed overhead is not relevant to the decision of plant closure.This is because, the cost is incurred whetehr or not the plant is shut down or not.
7.This is not relevant to the decision whether to introduce a product to marketplace , as the factors to be considered are the acceptbility of the product bu the market , competing products and the pricing of the product.
8.This is relevant , as the decision has to be made between the two products and we need to choose the product which gives the maximum benefit from the cost incurred.
9. Manufactured cost of the existing inventory is not relevant as it is a sunk cost andnot relevant to the decision being made.
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