Management Accountants Are Frequently Asked to Analyze Various Decision Situations

question 92

Multiple Choice

Management accountants are frequently asked to analyze various decision situations including the following:
● The cost of a special device that is necessary if a special order is accepted.
● The cost proposed annually for the plant service for the grounds at corporate headquarters.
● Joint production costs incurred, to be considered in a sell-or-process-further decision.
● The costs associated with alternative uses of plant space, to be considered in a make/buy decision.
● The cost of obsolete inventory acquired several years ago, to be considered in a keep-versus-disposal decision.
The costs described in situations III and V above are examples of:

• A) Prime costs.
• B) Sunk costs.
• C) Discretionary costs.
• D) Relevant costs.
• E) Opportunity costs.

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Definitions:

Credit Terms

Conditions under which credit will be extended to a borrower, including repayment schedule, interest rate, and the timeframe of the loan.

Annual Subscription

A payment model where services or publications are provided for a one-year period in exchange for a fee.

Resale

The act of selling a product or service that one has purchased to a third party.

Extending Credit

The practice of allowing customers to purchase goods or services on the promise of future payment, based on trust in the customer's ability and willingness to pay.