Relevant Costing 2

1.In the development of accounting data for decision-making, relevant costs are:

Answer: Future costs which will differ under each alternative course of action

2.In analyzing whether to build another regional service office, the salary of the Chief Executive Officer
(CEO) at the corporate headquarters is:

Answer: Irrelevant because it is future cost that will not differ between the alternatives under
consideration.

3.An opportunity cost commonly associated with a special order is:

Answer: The contribution margin on lost sales.

4.Which of the following costs is NOT relevant to a special order decision?

Answer: the portion of the cost of leasing the factory that is allocated to the special order

5.There is a market for both product X and product Y. Which of the following costs and revenues would
be most relevant in deciding whether to sell product X or process it further to make product Y?

Answer: Additional cost of making Y, given the cost of making X, and additional revenue from Y.

6.Great Electronics is operating at 70% capacity. The plant manager is considering making component
501 now being purchased for P110 each, a price that is projected to increase in the near future. The
plant has the equipment and labor force required to manufacture the component. The design engineer
estimates that each component requires P40 of direct materials and P30 of direct labor. The plant
overhead is 200% of direct labor peso cost, and 40% of the overhead is fixed cost. A decision to
manufacture component 501 will result in a gain or (loss) for each component of:

Answer: 4

7.The Sampaguita Steam Laundry bought a laundry truck that can be used for 5 years. The cost of the
truck is P225,000 with a salvage value of P35,000. Since the truck is not working efficiently,
management has thought of selling the truck immediately and buy a delivery wagon which will serve the
company’s purposes more properly. The estimated net returns of the truck for 5 years is P150,000. If
the truck is sold, management can only recover P175,000. (In all calculations, use the straight line
method of depreciation) The net gain (loss) that will arise if the Company decides to sell the truck is:

Answer: -50,000