QUESTION: 309 Topic 5: Part 2 Sec Five (258 to 317)

The costs described in situations Ill and V are

Prime costs.
Sunk costs.
Discretionary costs.
Imputed costs.

Answer(s): B

Explanation:

A sunk cost is a cost that cannot be avoided because the expenditure has already occurred or an irrevocable decision has been made to incur the cost. Sunk costs are irrelevant to management decision making because they cannot vary with the option selected. Both situations Ill and V represent sunk costs because the costs have already been incurred. Management accountants are frequently asked to analyze various decision situations, including the following:
I). The cost of a special device that is necessary if a special order is accepted. II). The cost proposed annually for the plant service for the grounds at corporate headquarters.
Ill). Joint production costs incurred, to be considered in a sell-at-split versus a process- further decision.
IV). The costs associated with alternative uses of plant space, to be considered in a make/buy decision.
V). The cost of obsolete inventory acquired several years ago, to be considered in a keep- versus-disposal decision.

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QUESTION: 310 Topic 5: Part 2 Sec Five (258 to 317)

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The cost described in situation II is a

Prime cost.
Discretionary cost.
Relevant cost.
Imputed cost.

Answer(s): B

Explanation:

A discretionary cost is characterized by uncertainly about the relationship of input (the cost) to output. It also tends to be the subject of a periodic decision regarding the outlay to be made. Research, advertising, and public relations are common examples. Thus, the annual cost of plant service is discretionary because of the difficultly of valuing the output.

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QUESTION: 311 Topic 5: Part 2 Sec Five (258 to 317)

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Total unit costs are

Relevant for cost-volume-profit analysis.
Needed for determining sunk costs.
Irrelevant in marginal analysis.
Independent of the cost system used to generate them.

Answer(s): C

Explanation:

Marginal (incremental or differential) analysis determines the differences in costs among decision choices. Total unit costs are not relevant in marginal analysis because of the inclusion of costs that may not 1[vary among the possible choices considered. In marginal analysis, only the incremental costs are relevant.

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QUESTION: 312 Topic 5: Part 2 Sec Five (258 to 317)

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The term relevant cost applies to all the following decision situations except the

Acceptance of a special order.
Manufacture or purchase of component parts.
Determination of a product price.
Replacement of equipment.

Answer(s): C

Explanation:

Relevant costs are those expected future costs that vary with the action taken. All other costs are assumed to be constant and thus have no effect on the decision. Relevant costs are considered in the analysis of decisions to make or buy a product, accept a special order, replace capital equipment, or add or delete a product line. Relevant costing applies to many special decisions but not to determining a product price. This decision involves an evaluation of, among other things, demand, competitors' actions, and total manufacturing and selling costs.

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Free CMA Exam Braindumps (page: 121)

QUESTION: 309 Topic 5: Part 2 Sec Five (258 to 317)

Explanation:

QUESTION: 310 Topic 5: Part 2 Sec Five (258 to 317)

Explanation:

QUESTION: 311 Topic 5: Part 2 Sec Five (258 to 317)

Explanation:

QUESTION: 312 Topic 5: Part 2 Sec Five (258 to 317)

Explanation: