Q 13-1

RELEVANT COST :

a cost that differs between a alternatives in a decision. This term is synonymous

with avoidable cost and differential cost.

Q 13-2

INCREMENTAL COST :

An increase in cost between 2 alternative.

OPPORTUNITY COST

The potential benefit that is given up when one alternative is selected over another.

SUNK COST :

A cost that has already been incurred and that cannot be charged by any decision
made now or in the future.

Q 13-3

Variable cost always relevant cost because each product cost different another
product cost. Variable cost that varies, in total, in direct proportion to changes in
the level of activity. Variable cost is constant per unit. Relevant cost different
between alternative in a decision making. Therefore, that is different between cost.

Q 13-4

Sunk cost are easy to spot- they’re simply the fixed costs associated with a
decision. I’m agree because fixed cost in any company or manufacturing not always
to chages. Example machine, when accour flood the machine is defective, so
company have shoulder sunk cost.

Q 13-5

Variable cost and differential cost mean the same thing. I’m not agree. Because
differential cost same with relevant cost. Relevant and differeantial cost differs
between alternative in a decision.
Q 13-6

All future cost are relevant in decision making. I’m agree because for business we
are look future cost to make a decision making. Future cost can allown to avoid net
operating income to loss or compony cannot going in business.

EXERCISE 13-2

Fixed expenses : total cost assigned not avoidable

avoidable

to racing bikes

advertising, traceable 6000 6000

dep. Of special equipment 8000 8000

salaries of product line manager 10000 10000

allocated commen fixed expenses 12000 12000

total 36000 8000 28000

contribution margin if the racing bike line is discontinueded

(27000)

(-) fixed cost that can be avoided if the racing bike line is discontinued 28000

Increase in overall company net operating income 1000

Therefore, based on the data given, the racing bike should be continued a more
profitable use can be found for the floor and counter space that it is accupying.
EXERCISE 13-3

a) Per unit make buy

Direct material $ 14 210000

Direct labor 10 150000

Variable MOH 3 45000

Supervisor salaries(1/3 x 90000) 30000

Dep. Special equipment (2/3 x 90000)-not relevant

Outside purchases price (35 x 15000)

525000

Total cost 435000

525000

Difference in favor of continuing to make 90000

Cost $90000 less to make carboretors to buy them from the outside supplier, Troy
engines should reject the outside supplier’s offer. However, the company may wish
to consider one additional factor before coming to a final decision. The opportunity
cost of the space now being used to produce the carburetors.

b) make buy

total annual cost 435000 525000

opportunity cost-segment margin forgone on a

potential new product line 150000

total cost 585000 525000

difference in favor of purchasing from the

outside supplier 60000

troy engines should continue to produce its own carburetors and the supplier’s offer
should be reject, as stated above. Idle space that has no alternative use has an
opportunity cost of zero.

Assume that the space now being used to produce carburetor could be used to
produce a segment margin of 150000 per year. Under these conditions, Troy
engines shoul accept the supplier’s offer and use the available space to produce the
new product line.

EXERCISE 13-4

$ 169.95 price on the special order is below the normal $189.95 unit product cost
and the would required additional cost, the order would decresed net operating loss.
In general, as special order is loss if the incremental revenue from the special order
reduction the incremental cost of the order. The special order should reject this
offer because this offer be affected net operating loss.

EXERCISE 13-5

A B C

Selling price per unit 180 270 240

Variables per unit 102 90 148

Cm per unit 78 180 92

Cm ratio 43% 67% 38%

EXERCISE 13-6

A B C

Final sales value after futher processing 300000 260000

128000

(-)sales value at the split-off point 240000 160000

100000

Incremental revenue from futher processing 60000 100000 28000

(-)cost off point 63000 80000 36000

Profit (loss) from futher processing (3000) 20000
(8000)

The company would be better off selling the undyed product rather than processing
it futher. The product should be processed futher and dyed before selling them.