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chapter 13 - Q13-9 The danger in allocating common fixed...

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Bus 215 Section 08 November 17, 2010 Homework Assignment: Chapter 13 Q13-3) No, variable costs are relevant costs only if they differ in total between the alternatives that are being considered in decision making. Q13-4) No, I disagree. A fixed cost could mean that it has not been incurred yet but will be paid in the future such as rent. A sunk cost is when a cost has already been incurred and cannot be avoided regardless of what a manager decides to do. Also, a sunk cost is irrelevant so the decision does not even matter because the cost has already happened. Q13-8) No, I disagree that even though a product line is generating a loss, that it shouldn’t be dropped. It really depends on what the income statement is showing – whether it includes the fixed expenses which can be avoided if a product line is dropped or common fixed expenses which cannot be avoided. There are still costs tied in with the line even with dropping it if it’s causing lost.
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Unformatted text preview: Q13-9) The danger in allocating common fixed costs among product lines or other segments of an organization is that it could potentially make a product line unprofitable, whereas it may be profitable. Q13-10) The opportunity cost plays a role in the make or buy decision. The opportunity costs represent economic benefits that are forgone as a result of pursuing some course of action. However, opportunity costs are not recorded in the organization’s general ledger because they do not represent actual dollar outlays. Q13-15) A guideline to determine whether a joint product should be sold at the split-off point or processed further is if the incremental revenue from further processing exceeds the incremental costs of further processing, the product should be processed further....
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