ACC 604 Homework Chapter 7 (National University)

<strong>ACC</strong> <strong>604</strong> <strong>Homework</strong> <strong>Chapter</strong> 7<br />

(<strong>National</strong> <strong>University</strong>)<br />

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<strong>604</strong>-homework-chapter-7-nationaluniversity/<br />

<strong>Chapter</strong> Seven<br />

1. What is a relevant cost?<br />

2. Define the following terms: incremental cost, opportunity cost, and sunk cost.<br />

3. Are variable costs always relevant costs? Explain.<br />

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

Explain.<br />

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

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

7. Prentice Company is considering dropping one of its product lines. What costs of the product line<br />

would be relevant to this decision? What costs would be irrelevant?<br />

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

9. What is the danger in allocating common fixed costs among products or other segments of an<br />

organization?<br />

10. How does opportunity cost enter into a make or buy decision?<br />

11. Give at least four examples of possible constraints.<br />

12. How will relating product contribution margins to the amount of the constrained resource they<br />

consume help a company maximize its profits?<br />

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

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

15. What guideline should be used in determining whether a joint product should be sold at the split-off<br />

point or processed further?<br />

16. Airlines sometimes offer reduced rates during certain times of the week to members of a<br />

businessperson’s family if they accompany him or her on trips. How does the concept of relevant costs<br />

enter into the decision by the airline to offer reduced rates of this type?