are avoided fixed costs relevant in a make or buy decision
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Robert Company is considering buying an input to its main product from an outside supplier, rather than producing the input itself. If Robert Company purchases the part elsewhere, it can use the capacity currently being used to produce the input to generate additional profit of $22,000. When considering this decision, Robert Co. managers should: Include the $22,000 as both a cost of making the input and a benefit of purchasing the input from the outside supplier. Ignore the $22,000. Consider the $22,000 as a cost of making the input. Consider the $22,000 as a cost of purchasing the input from the outside supplier. Ryan is a manager in a bank. He is using cost information to make a number of operational decisions. Some of these costs are salaries for other employees, who have formal one-year employment contracts. Which of the following statements are true regarding these costs? (Check all that apply.) Ryan must consider contracted salary costs in most operational decisions. Ryan can deem contracted salary costs as relevant for most decisions. Ryan can deem contracted salary costs as irrelevant for most operational decisions. Ryan can classify contracted salary costs as sunk. Shelby is considering whether to drop a product line from her business. Some administrative costs are being allocated to the product line but will not change in total if Shelby decides to drop the product line. Which of the following statements are true regarding these costs? (Check all that apply.) Administrative costs are always relevant. The allocated administrative costs are irrelevant because they are not direct costs. The allocated administrative costs are irrelevant because they will not change as a result of the decision. The allocated administrative costs are irrelevant because they will just be re-allocated to remaining product lines.
Jennifer S.
Relevant costs in a make-or-buy decision of a part include: A. Setup overhead for the manufacture of the product using the outsourced part. B. Currently used manufacturing capacity that has alternative uses. C. Annual plant insurance costs that will remain the same. D. Corporate office costs that will be allocated differently.
_______________ are the costs associated with not choosing the other alternative Sunk costs Opportunity costs Differential costs Avoidable costs
Sanchit J.
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Horngren’s Cost Accounting
Cost Accounting A Managerial Emphasis
Principles of Accounting Volume 1: Financial Accounting
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