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:

Market Equilibrium

A state where the supply of goods matches demand, leading to a stable price level for those goods.

Average Total Cost

The sum of all production expenses (both fixed and variable) divided by the overall output.

Total Variable Cost

The cumulative expenses that change in proportion to the level of goods or services produced.