ACC 604 Homework Chapter 7 (National University)
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<strong>ACC</strong> <strong>604</strong> <strong>Homework</strong> <strong>Chapter</strong> 7<br />
(<strong>National</strong> <strong>University</strong>)<br />
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<strong>604</strong>-homework-chapter-7-nationaluniversity/<br />
<strong>Chapter</strong> Seven<br />
1. What is a relevant cost?<br />
2. Define the following terms: incremental cost, opportunity cost, and sunk cost.<br />
3. Are variable costs always relevant costs? Explain.<br />
4. “Sunk costs are easy to spot—they’re the fixed costs associated with a decision.” Do you agree?<br />
Explain.<br />
5. “Variable costs and differential costs mean the same thing.” Do you agree? Explain.<br />
6. “All future costs are relevant in decision making.” Do you agree? Why?<br />
7. Prentice Company is considering dropping one of its product lines. What costs of the product line<br />
would be relevant to this decision? What costs would be irrelevant?<br />
8. “If a product is generating a loss, then it should be discontinued.” Do you agree? Explain.<br />
9. What is the danger in allocating common fixed costs among products or other segments of an<br />
organization?<br />
10. How does opportunity cost enter into a make or buy decision?<br />
11. Give at least four examples of possible constraints.<br />
12. How will relating product contribution margins to the amount of the constrained resource they<br />
consume help a company maximize its profits?<br />
13. Define the following terms: joint products, joint costs, and split-off point.<br />
14. From a decision-making point of view, should joint costs be allocated among joint products?<br />
15. What guideline should be used in determining whether a joint product should be sold at the split-off<br />
point or processed further?<br />
16. Airlines sometimes offer reduced rates during certain times of the week to members of a<br />
businessperson’s family if they accompany him or her on trips. How does the concept of relevant costs<br />
enter into the decision by the airline to offer reduced rates of this type?