Management Accountants Are Frequently Asked to Analyze Various Decision Situations

question 78

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 I and IV above are examples of:

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

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Definitions:

Variable Overhead Efficiency Variance

The difference between the budgeted and actual variable overhead costs, attributable to differences in the efficiency of utilizing resources.

Variable Overhead Rate Variance

The discrepancy between the actual incurred variable overhead and the anticipated variable overhead as per standard costing.

Lubricants

Substances that are applied to surfaces to reduce friction and wear between moving parts.

Variable Overhead Rate Variance

The difference between the actual variable overhead incurred and the expected variable overhead based on the predetermined overhead rate.