Relevant Costs for Non-Routine

Decision Making

Strategic Cost Management

Module 8: Week 12 (5 of hrs)
Instructor: Rexy Anne Bañez, CPA

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Strategic Cost Management
Module 8: Week 12 (5 hrs)
Experience Total Human Formation

General Instructions
(1) Your success in this module largely depends on your diligence and hard work in accomplishing the
activities prepared for you.
(2) Read and follow instructions carefully.
(3) Some activities require research and thorough reading. Please be responsible to do your part.
(4) Learning is self-paced and self-directed. Use your time wisely.

Learning Outcomes
At the end of the module, the students must be able to:
1. Define the decision-making process.
2. Discuss the general rule for distinguishing between relevant and irrelevant costs in a decision-
making situation.
3. Identify sunk costs and explain why they are not relevant in decision making.
4. Identify opportunity costs as well as out-of-pocket costs.
5. Apply the incremental analysis approach in decision making.
6. Apply the total project analysis approach in decision making.
7. Prepare an analysis whether a part should be manufactured or purchased.
8. Prepare an analysis showing whether a product line or other segments should be dropped or retained.
9. Prepare an analysis showing whether joint products should be sold at the split-off point or processed
further.
10. Evaluate whether a special order should be accepted or rejected.
11. Make appropriate computations to determine the optimum utilization of scarce resources.
12. Evaluate whether the company continues operations or temporarily shutdown.
13. Determine selling price using cost-plus pricing approach.
14. Apply target costing.

Explore
A. On your textbook “Strategic Cost Management”, study the following chapter:
a. Chapter 11: “Relevant Costs for Non-Routine Decision Making

Engage
Multiple Choice (Theories)
1. Incremental analysis would not be appropriate for a (an):
a. Make or buy decision
b. Allocation of limited resource decision
c. Elimination of an unprofitable segment
d. Analysis of manufacturing cost variance
2. Which of the following best describes a relevant information?

Instructor’s contact No: 0917 777 3744, E-mail address: [email protected]

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Strategic Cost Management
Module 8: Week 12 (5 hrs)
Experience Total Human Formation

a. Focused on the past and differs between the alternatives under consideration.
b. Focused on the past and not related to the decision under consideration.
c. Focused on the future and differs between the alternatives under consideration.
d. Focused on the future and not related to the decision under consideration.
3. The kind of cost that can be ignored in a short-term decision making is a (an):
a. Differential cost
b. Sunk cost
c. Incremental cost
d. Joint cost
4. The best characterization of an opportunity cost is that it is
a. Relevant to decision making but is not usually reflected in the accounting records
b. Not relevant to decision making and is not usually reflected in the accounting records.
c. Relevant to decision making and is usually reflected in the accounting records.
d. Not relevant to decision making and is usually reflected in the accounting records.
5. The Health Care Division of Piedmont Insurance employs three claims processors who are capable of
processing 5,000 claims each. The division currently processes 12,000 claims. The manager has
recently been approved by two sister divisions. Auto Division would like the Health Care Division to
process approximately 2,000 claims. Property Division would like Health Care Division to process
approximately 5,000 claims. The Health Care Division would be compensated by Auto Division or
Property Division for processing these claims. Assume that there are mutually exclusive alternatives.
Claims processor salary cost is relevant for
a. Auto Division alternative only
b. Property Division alternative only
c. Both Auto Division and Property Division alternatives
d. Neither Auto Division nor Property Division alternatives
6. Relevant costs are
a. All fixed and variable costs
b. All costs that would be incurred within the relevant range of production.
c. Past costs that are expected to be different in the future.
d. Anticipated future costs that will differ among various alternatives.
7. Sensitivity analysis is useful in decision making when:
a. There is a degree of uncertainty about the relevant data.
b. There is an opportunity cost included in the analysis.
c. Sunk cost is included in the analysis.
d. The analysis is subject to a review by the management.
8. Unit costs can mislead decision makers. Which of the following situations dealing with unit costs is not
expected to result in a faulty analysis?
a. Unit costs used in make-or-buy decisions might include costs such as avoidable fixed costs.
b. Variable unit cost directly varies with the changes in production units.
c. Total fixed costs increase as more units are produced within the relevant range.
d. Contribution margin on products that can be manufactured in using the freed capacity is
irrelevant in the decision.
9. Incremental analysis is the process of identifying the financial data that:
a. Do not change under alternative courses of action.
b. Are mixed under alternative courses of action
c. Change under alternative courses of action

Instructor’s contact No: 0917 777 3744, E-mail address: [email protected]

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Landline:(088) 521 0342 local # 107 Mobile: Globe 09264157092; Smart 09304427899
LSU hotlines: 088 521 0342 local 156 or 157
 Strategic Cost Management
Module 8: Week 12 (5 hrs)
Experience Total Human Formation

d. No correct answer is given

10. Suck costs are
a. costs that increase due to a higher volume of activity or the performance of an additional
activity.
b. Costs that a company must incur to perform an activity at a given level but will not be incurred
if a company reduces or discontinues the activity.
c. The profits that a company forgoes by following a particular course of action.
d. Costs that were incurred prior to making a decision.

Evaluate
Instructions: Answer the following:

1.
a. P8.00
b. P13.00
c. P9.50
d. P14.50

2.
a. P40,000
b. P(40,000)
c. P150,000
d. P(150,000)

Instructor’s contact No: 0917 777 3744, E-mail address: [email protected]

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Landline:(088) 521 0342 local # 107 Mobile: Globe 09264157092; Smart 09304427899
LSU hotlines: 088 521 0342 local 156 or 157
 Strategic Cost Management
Module 8: Week 12 (5 hrs)
Experience Total Human Formation

3.
If the product is outsourced, Sylvan will
a. Decrease profit by P2,000
b. Decrease profit by P4,000
c. Increase profit by P2,000
d. Increase profit by P4,000

4.
a. Lose P20,000
b. Lose P45,000
c. Gain P20,000
d. Gain P45,000

5.
a. Not change
b. Increase by P35,000
c. Decrease by P35,000
d. Increase by P25,000

Instructor’s contact No: 0917 777 3744, E-mail address: [email protected]

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Landline:(088) 521 0342 local # 107 Mobile: Globe 09264157092; Smart 09304427899
LSU hotlines: 088 521 0342 local 156 or 157
 Strategic Cost Management
Module 8: Week 12 (5 hrs)
Experience Total Human Formation

6.
a. Increase by P4,800
b. Decrease by P3,200
c. Decrease by P6,200
d. Increase by P1,800

7.

Instructor’s contact No: 0917 777 3744, E-mail address: [email protected]

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Landline:(088) 521 0342 local # 107 Mobile: Globe 09264157092; Smart 09304427899
LSU hotlines: 088 521 0342 local 156 or 157
 Strategic Cost Management
Module 8: Week 12 (5 hrs)
Experience Total Human Formation

a. Loss by P225
b. Loss by P375
c. Gain by P225
d. Gain by P375

8.
a. P8.50
b. P7.75
c. P6.75
d. P5.25

9.
a. Decrease the handle unit cost by P0.50

Instructor’s contact No: 0917 777 3744, E-mail address: [email protected]

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LSU hotlines: 088 521 0342 local 156 or 157
Strategic Cost Management
Module 8: Week 12 (5 hrs)
Experience Total Human Formation

b. Increase the handle unit cost by P1.50

c. Decrease the handle unit cost by P1.50
d. Increase the handle unit cost by P0.50

10.
a. 30,000 units
b. 32,000 units
c. 80,000 units
d. 48,000 units

11.
a. P21,000
b. P16,000
c. P11,000

Instructor’s contact No: 0917 777 3744, E-mail address: [email protected]

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Landline:(088) 521 0342 local # 107 Mobile: Globe 09264157092; Smart 09304427899
LSU hotlines: 088 521 0342 local 156 or 157
Strategic Cost Management
Module 8: Week 12 (5 hrs)
Experience Total Human Formation

d. Cannot be determined

12.
a. P71
b. P75
c. P69
d. P84

13.
a. P300
b. P180

Instructor’s contact No: 0917 777 3744, E-mail address: [email protected]

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Landline:(088) 521 0342 local # 107 Mobile: Globe 09264157092; Smart 09304427899
LSU hotlines: 088 521 0342 local 156 or 157
Strategic Cost Management
Module 8: Week 12 (5 hrs)
Experience Total Human Formation

c. P270
d. P40

14.
a. Sell before assembly, the company will be better off by P18 per unit.
b. Sell before assembly, the company will be better off by P26 per unit.
c. Process further, the company will be better off by P26 per unit.
d. Process further, the company will be better off by P8 per unit.

15.
a. Sell now
b. Finish the product because profits will increase by P25,000
c. Finish the product because profits will increase by P12,000
d. Finish the product because profits will increase by P10,000

16.
a. 1,000 units
b. 200 units
c. 500 units
d. 0 units

Instructor’s contact No: 0917 777 3744, E-mail address: [email protected]

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Landline:(088) 521 0342 local # 107 Mobile: Globe 09264157092; Smart 09304427899
LSU hotlines: 088 521 0342 local 156 or 157
Strategic Cost Management
Module 8: Week 12 (5 hrs)
Experience Total Human Formation

17.
a. P86,000
b. P110,000
c. P96,000
d. P104,000

18.
a. P13,500

Instructor’s contact No: 0917 777 3744, E-mail address: [email protected]

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Landline:(088) 521 0342 local # 107 Mobile: Globe 09264157092; Smart 09304427899
LSU hotlines: 088 521 0342 local 156 or 157
Strategic Cost Management
Module 8: Week 12 (5 hrs)
Experience Total Human Formation

b. P11,000
c. P7,250
d. P1,250

19.
a. P160,000
b. P113,000
c. P153,000
d. P133,000

20.
a. This segment has a net loss of P8,000.
b. This segment’s revenue is greater than avoidable costs.
c. This segment is a good candidate for elimination.
d. This segment’s avoidable costs are greater than unavoidable costs.

Instructor’s contact No: 0917 777 3744, E-mail address: [email protected]

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Landline:(088) 521 0342 local # 107 Mobile: Globe 09264157092; Smart 09304427899
LSU hotlines: 088 521 0342 local 156 or 157
Strategic Cost Management
Module 8: Week 12 (5 hrs)
Experience Total Human Formation

21.
a. P54.00 for Beta and P147.00 for Zeta
b. P50.00 for Beta and P150.00 for Zeta
c. P14.00 for Beta and P127.00 for Zeta
d. P30.00 for Beta and P135.00 for Zeta

22.
a. P132,000
b. P150,000

Instructor’s contact No: 0917 777 3744, E-mail address: [email protected]

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Landline:(088) 521 0342 local # 107 Mobile: Globe 09264157092; Smart 09304427899
LSU hotlines: 088 521 0342 local 156 or 157
Strategic Cost Management
Module 8: Week 12 (5 hrs)
Experience Total Human Formation

c. P144,000
d. P264,000

23.
a. Produce 25,000 electric mixers, and purchase all other units as needed
b. Produce 20,000 blenders and 15,000 electric mixers, and purchase all other units as needed
c. Produce 20,000 blenders and purchase all other units as needed
d. Produce 28,000 electric mixers and purchase all other units as needed

24.
a. P15,000
b. P5,000
c. P25,000

Instructor’s contact No: 0917 777 3744, E-mail address: [email protected]

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Landline:(088) 521 0342 local # 107 Mobile: Globe 09264157092; Smart 09304427899
LSU hotlines: 088 521 0342 local 156 or 157
 Strategic Cost Management
Module 8: Week 12 (5 hrs)
Experience Total Human Formation

d. P12,500

25.
a. P72
b. P78
c. P81
d. P6

Reflect
"There is an opportunity cost to everything.” – Julie Beck
What are your thoughts regarding this quote?

References
“Strategic Cost Management” 2019-2o2o Edition by Ma. Elenita Balatbat Cabrera & Gilbert Anthony B.
Cabrera
Prepared Verified Approved

Ms. Rexy Anne L. Bañez, CPA Mr. Lowelle C. Pacot, CPA, MMA Mr. Lowelle C. Pacot, CPA, MMA
Instructor Program Head Dean
Date: December 4, 2020 Date: December 4, 2020 Date: December 4, 2020

Instructor’s contact No: 0917 777 3744, E-mail address: [email protected]

14
Landline:(088) 521 0342 local # 107 Mobile: Globe 09264157092; Smart 09304427899
LSU hotlines: 088 521 0342 local 156 or 157