Cost Accounting Flashcards

Joint costs are BEST described as:

Answer: Costs shared by two or more products produced simultaneously up to the split-off point

Joint costs are incurred before the split-off point where two or more products emerge from a common production process and cannot be separately identified.

Which joint cost allocation method uses the revenue at the split-off point as the allocation base?

Answer: Sales value at split-off method

The sales value at split-off method allocates joint costs based on each product's relative market value at the exact point where they separate.

A by-product is BEST characterized as:

Answer: A secondary output with relatively minor sales value

By-products are incidental outputs of a production process that have minor sales value compared to the main product(s).

Which of the following costs is ALWAYS irrelevant in a make-or-buy decision?

Answer: Sunk costs already incurred on equipment

Sunk costs are past expenditures that cannot be recovered and do not affect future cash flows, making them always irrelevant in any decision.

In the net realizable value (NRV) method of joint cost allocation, NRV is calculated as:

Answer: Final selling price minus separable costs after split-off

NRV = Final selling price − Separable (additional) processing costs incurred after the split-off point for each product.

A company should accept a special order at a price below normal selling price ONLY if:

Answer: The incremental revenue from the order exceeds the incremental cost to fill it

A special order is profitable whenever incremental revenue exceeds incremental (relevant) costs; fixed costs are usually irrelevant if capacity exists.

What is the effect on contribution margin per unit when variable costs increase but selling price remains unchanged?

Answer: Contribution margin per unit decreases

Contribution margin per unit = Selling price − Variable cost per unit; if variable cost rises with price fixed, contribution margin falls.