The relevance of a particular cost to a decision is determined by riskiness of a decision

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journal article

The Association between Market Determined and Accounting Determined Risk Measures

The Accounting Review

Vol. 45, No. 4 (Oct., 1970)

, pp. 654-682 (29 pages)

Published By: American Accounting Association

//www.jstor.org/stable/244204

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Journal Information

The Accounting Review is the premier journal for publishing articles reporting the results of accounting research and explaining and illustrating related research methodology. The scope of acceptable articles embraces any research methodology and any accounting-related subject. The primary criterion for publication in The Accounting Review is the significance of the contribution an article makes to the literature.

Publisher Information

The American Accounting Association is the world's largest association of accounting and business educators, researchers, and interested practitioners. A worldwide organization, the AAA promotes education, research, service, and interaction between education and practice. Formed in 1916 as the American Association of University Instructors in Accounting, the association began publishing the first of its ten journals, The Accounting Review, in 1925. Ten years later, in 1935, the association changed its name to become the American Accounting Association. The AAA now extends far beyond accounting, with 14 Sections addressing such issues as Information Systems, Artificial Intelligence/Expert Systems, Public Interest, Auditing, taxation (the American Taxation Association is a Section of the AAA), International Accounting, and Teaching and Curriculum. About 30% of AAA members live and work outside the United States.

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10. In a make or buy decision analysis, which of the following qualitative factors is/are usually considered?

a. Assurance of quality control

b. Skilled labor

c. Special technology

d. All of the above

11. Which of the following statements about make or buy decision analysis is not correct?

a. Available resources should be used as efficiently as possible before outsourcing

b. The analysis should involve available costs only

c. If the total relevant cost of production is less than the cost to buy the item, it should be produced in house

d. The decision depends on whether the company is operating at or below the normal capacity

12. Which of the following qualitative factors favors the buy choice in a make or buy decision?

a. Quality control is critical

b. There is available idle capacity

c. The cost to buy is less than the relevant cost to make

d. The maintenance of long-run relationship with suppliers is desirable

13. In joint product costing analysis, which of the following costs is relevant when deciding the point at which a product

should be sold to maximize profits?

a. Joint costs to the split-off point

b. Separable costs incurred after the split-off point

c. Common costs incurred prior to split-off point

d. Materials costs incurred during the joint manufacturing process

14. A company’s manager wants to make a decision whether to sell Product A or process it further to produce Product B.

In this decision making analysis, the manager should consider only the relevant revenues and costs, which are the

a. Final sales value and total costs after processing Product A further

b. Sales value of product A and the cost to produce Product B

c. Increase in sales value if Product B is produced and the cost to process Product A into Product B

d. Gross profit from product A and revenue from Product B

15. Processor, Inc. produces Product A in a joint manufacturing process. Processor is studying whether to sell Product A

at the split-off point or process it further into Product AA. The following information pertains to the two products:

I. Selling price of Product A

II. Selling price of Product AA

III. Joint production cost to produce Product A

IV. Variable manufacturing cost to produce Product AA

V. Avoidable fixed cost to produce Product AA

In a sell or process further decision analysis, which of the given information should not be considered?

a. I, II, II, IV and V

b. III and V

c. III only

d. I, III and V

16. In a decision-making analysis involving a question on whether to continue or discontinue selling a product or

operating a business segment,

a. The avoidable revenues should be compared with the avoidable costs

b. The product or business segment whose total cost is greater than its revenue should be discontinued

c. All fixed costs are irrelevant

d. The product or business segment that has a positive contribution margin should not be discontinued

17. Which of the following is not relevant to a decision about whether to drop a segment or not?

a. The available fixed costs direct to that segment

b. The contribution margin expected to be earned by the segment

c. The complementary effects of discontinuing the segment

d. The indirect cost allocated to the segment

Which of following must be considered in determining the relevance of a particular cost to a decision?

How is relevant cost important in decision making?

Which of the following costs are relevant to a make or buy decision?

Which of the following types of costs is always relevant to a decision?