QUESTION: 297 Topic 5: Part 2 Sec Five (258 to 317)

Which concept of costs includes only explicit costs?

Economic.
Opportunity
Accounting.
Sunk.

Answer(s): C

Explanation:

The accounting concept of costs includes only explicit costs, i.e., those that represent actual outlays of cash, the allocation of outlays of cash, or commitments to pay cash. Examples include the incurrence of payables and the satisfaction of payables.

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QUESTION: 298 Topic 5: Part 2 Sec Five (258 to 317)

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BCD Corp. outsourced an order for shovel handles to RST Corp. because BCD could not fill the order. By having RST produce the order, BCD was able to realize $10000 in sales profits that otherwise would have been lost. The outsourcing cost added a cost of $1 .000, but BCD was ahead by $9000 when the order was completed. Which of the following statements is correct regarding BCD's action?

The use of resource markets outside of BCD involves opportunity cost. B.
Accounting profit is total revenue minus explicit costs and implicit costs. C.
Implicit costs are not opportunity costs because they are internal costs.
Explicit costs are opportunity costs from purchasing shovel handles from a resource market.

Answer(s): A

Explanation:

Opportunity cost is the maximum benefit forgone by using a scarce resource for a given purpose. It is the benefit, for example, the contribution to income, provided by the best alternative use of that resource. Thus, outsourcing involves opportunity cost. The outsourcer uses resources for purposes other than filling the order and therefore forgoes the benefits it would have received.
Management accountants are frequently asked to analyze various decision situations, including the following.
1. Alternative uses of plant space, to be considered in a make/buy decision.
2. Joint production costs incurred, to be considered in a sell-at-split versus a process- further decision.
3. Research and development costs incurred in prior months, to be considered in a product-introduction decision.
4. The cost of a special device that is necessary if a special order is accepted.
5. The cost of obsolete inventory acquired several years ago, to be considered in a keep- versus-disposal decision.

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QUESTION: 299 Topic 5: Part 2 Sec Five (258 to 317)

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The costs described in situations 1 and 4 are

Prime costs.
Sunk costs.
Discretionary costs.
Relevant costs.

Answer(s): D

Explanation:

Alternative uses of plant space to be considered in a make/buy decision and the cost of a special device necessary for acceptance of a special order are examples of relevant costs. Relevant costs are future costs that are expected to vary with the action taken. Other costs thus have no effect on the decision.
Management accountants are frequently asked to analyze various decision situations, including the following.
1. Alternative uses of plant space, to be considered in a make/buy decision.
2. Joint production costs incurred1 to be considered in a sell-at-split versus a process- further decision.
3. Research and development costs incurred in prior months, to be considered in a product-introduction decision.
4. The cost of a special device that is necessary if a special order is accepted.
5. The cost of obsolete inventory acquired several years ago, to be considered in a keep- versus-disposal decision.

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QUESTION: 300 Topic 5: Part 2 Sec Five (258 to 317)

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The costs described in situations 2, 3, and 5 are

Sunk costs.
Discretionary costs.
Relevant costs.
Differential costs.

Answer(s): A

Explanation:

Joint production costs are irrelevant to deciding whether to sell at split-off or to process further. Similarly, already incurred R&D costs and the costs of obsolete inventory are irrelevant to future decisions. Thus, these are examples of sunk costs. Sunk costs are unavoidable. They are the result of a past irrevocable decision and thus have no relevance to future decisions.

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QUESTION: 297 Topic 5: Part 2 Sec Five (258 to 317)

Explanation:

QUESTION: 298 Topic 5: Part 2 Sec Five (258 to 317)

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QUESTION: 299 Topic 5: Part 2 Sec Five (258 to 317)

Explanation:

QUESTION: 300 Topic 5: Part 2 Sec Five (258 to 317)

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