University:
Liberty University
Course:
ACCT 311 | Cost Accounting I
Academic year:

2022
Views:

354

Pages:

2
Author:

Alexa Livingston

COST ACCOUNTING CHAPTER 12 NOTES The first step in decision making is to define the alternatives being considered Relevant costs- a cost that should be considered when making decisions Relevant benefits- a benefit that should be considered when making decisions Differential cost- future cost that differs between any two alternatives Differential revenue- future revenue that differs between any two alternatives Incremental cost- an increase in cost between two alternatives Avoidable cost- cost that can be eliminated by choosing one alternative over another Sunk cost- cost that has already been incurred and cannot be changed regardless of what a manager decides to do Opportunity cost- potential benefit that is given up when one alternative is chosen over another Isolating relevant costs is desirable because: only rarely will enough information be available to prepare a detailed income statement for both alternatives, and mingling irrelevant costs with relevant costs may cause confusion and distract attention from something that is really critical. One of the great dangers in allocating common fixed costs is that such allocations can make a product line look less profitable than it really is. Vertically integrated- when a company is involved in more than one activity in the entire value chain Make or buy decision- a decision to carry out one of the activities in the value chain internally, rather than to buy externally from a supplier. Vertical integration provides advantages: an integrated company is less dependent on its suppliers and may be able to ensure a smoother flow of parts and materials for production than a nonintegrated company. Idle space that has no alternative use has an opportunity cost of zero. Special order- one time order that is not considered part of the company’s normal ongoing business Volume trade off decisions- do not have enough capacity to produce all of the products and sales volumes demanded by their customers. Constraint- anything that prevents you from getting more of what you want Constraint is also called a bottleneck Effectively managing an organizations constraints is a key to increasing profits The capacity of a bottleneck can be effectively increased by: working overtime on the bottleneck, subcontracting some of the process, investing in additional machines, shifting workers from other processes, focusing business process improvement efforts, reducing defective units. Joint products- two or more products, usually produced from a single raw material input. Split off point- the point in a manufacturing process where joint products can be recognized as separate products. Sell or process further decision- a decision as to whether a joint product should be sold at the split off point or processed further. To make sell or process further decisions: first they should ignore all joint costs, determine the incremental revenue that is earned by further processing the joint product, and to take the incremental revenue from step two and subtract the incremental costs associated with processing the joint product beyond the split off point. Joint costs- all costs incurred up to the split off point

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