Case 12-21 (continued)
The reduction in unsold inventories at the end of the season as a
percentage of cost of sales could have occurred for a number of
reasons that are not necessarily good for profits. For example,
managers may have been too cautious about ordering goods to
restock low inventories—creating stockouts and lost sales. Or,
managers may have cut prices drastically on excess inventories in
order to eliminate them before the end of the season. This may have
reduced the willingness of customers to pay the store’s normal prices.
Or, managers may have gotten rid of excess inventories by selling
them to discounters before the end of the season.
Chapter 13
Differential Analysis: The Key to Decision
Making
Solutions to Questions
13-1 A relevant cost differs between the alternatives, a variable cost will not be affected
alternatives in a decision. and it will be irrelevant.
13-2 An incremental cost (or benefit) is the 13-6 No. Only those future costs that differ
change in cost (or benefit) that will result from between the alternatives are relevant.
some proposed action. An opportunity cost is
the benefit lost or sacrificed when rejecting 13-7 Only those costs avoided by dropping
some course of action. A sunk cost has already the product line are relevant in the decision.
been incurred and cannot be changed by any Costs that will not be affected by the decision
future decision. are irrelevant.
13-3 No. Variable costs are relevant costs 13-8 Not necessarily. An apparent loss may
only if they differ in total between the be the result of allocated common costs or of
alternatives under consideration. sunk costs that cannot be avoided if the product
is dropped. A product should be discontinued
13-4 No. Not all fixed costs are sunk—only only if the contribution margin lost by dropping
those for which the cost has already been the product is less than the avoided fixed costs.
irrevocably incurred. A variable cost can be a Even in that situation the product may be
sunk cost if it has already been incurred. retained if it promotes the sale of other
products.
13-5 No. A variable cost is a cost that varies
in total amount in direct proportion to changes 13-9 Allocations of common fixed costs can
in the level of activity. A differential cost is the make a product (or other segment) appear to be
difference in cost between two alternatives. If unprofitable, whereas in fact it may be
the level of activity is the same for the two profitable.
Copyright © 2024 McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 13
,13-10 If a company decides to make a part or process where joint products can be recognized
provide a service internally rather than buying it as individual products.
from an outside vendor, then a portion of the
company’s facilities have to be used to make 13-14 Joint costs should not be allocated
that part or provide that service. The company’s among joint products for decision-making
opportunity cost is measured by the benefits purposes. If joint costs are allocated among the
that could be derived from the best alternative joint products, then managers may think they
use of the facilities. are avoidable costs of the end products.
However, the joint costs will continue to be
13-11 Any resource required to make products incurred as long as the process is run regardless
and get them into the hands of customers could of what is done with one of the end products.
be a constraint. Some examples are machine Thus, when making decisions about the end
time, direct labor time, floor space, raw products, the joint costs are not avoidable and
materials, investment capital, supervisory time, are irrelevant.
and storage space. While not covered in the
text, constraints can also be intangible and often 13-15 If the incremental revenue from further
take the form of a formal or informal policy that processing exceeds the incremental costs of
prevents the organization from furthering its further processing, the product should be
goals. processed further.
13-12 Assuming fixed costs are not affected, 13-16 Most costs of a flight are either sunk
profits are maximized when the total costs, or costs that do not depend on the
contribution margin is maximized. A company number of passengers on the flight.
can maximize its total contribution margin by Depreciation of the aircraft, salaries of personnel
focusing on the products with the greatest on the ground and in the air, and fuel costs, for
amount of contribution margin per unit of the example, are the same whether the flight is full
constrained resource. or almost empty. Therefore, adding more
passengers at reduced fares when seats would
13-13 Joint products are two or more products otherwise be empty does little to increase the
produced from a common input. Joint costs are total costs of operating the flight, but increases
the costs incurred up to the split-off point. The the total contribution and total profit.
split-off point is the point in the manufacturing
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 13 199
,Chapter 13: Applying Excel
The completed worksheet is shown below.
Copyright © 2024 McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 13
, Chapter 13: Applying Excel (continued)
The completed worksheet, with formulas displayed, is shown below.
Copyright © 2024 McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 13 201
The reduction in unsold inventories at the end of the season as a
percentage of cost of sales could have occurred for a number of
reasons that are not necessarily good for profits. For example,
managers may have been too cautious about ordering goods to
restock low inventories—creating stockouts and lost sales. Or,
managers may have cut prices drastically on excess inventories in
order to eliminate them before the end of the season. This may have
reduced the willingness of customers to pay the store’s normal prices.
Or, managers may have gotten rid of excess inventories by selling
them to discounters before the end of the season.
Chapter 13
Differential Analysis: The Key to Decision
Making
Solutions to Questions
13-1 A relevant cost differs between the alternatives, a variable cost will not be affected
alternatives in a decision. and it will be irrelevant.
13-2 An incremental cost (or benefit) is the 13-6 No. Only those future costs that differ
change in cost (or benefit) that will result from between the alternatives are relevant.
some proposed action. An opportunity cost is
the benefit lost or sacrificed when rejecting 13-7 Only those costs avoided by dropping
some course of action. A sunk cost has already the product line are relevant in the decision.
been incurred and cannot be changed by any Costs that will not be affected by the decision
future decision. are irrelevant.
13-3 No. Variable costs are relevant costs 13-8 Not necessarily. An apparent loss may
only if they differ in total between the be the result of allocated common costs or of
alternatives under consideration. sunk costs that cannot be avoided if the product
is dropped. A product should be discontinued
13-4 No. Not all fixed costs are sunk—only only if the contribution margin lost by dropping
those for which the cost has already been the product is less than the avoided fixed costs.
irrevocably incurred. A variable cost can be a Even in that situation the product may be
sunk cost if it has already been incurred. retained if it promotes the sale of other
products.
13-5 No. A variable cost is a cost that varies
in total amount in direct proportion to changes 13-9 Allocations of common fixed costs can
in the level of activity. A differential cost is the make a product (or other segment) appear to be
difference in cost between two alternatives. If unprofitable, whereas in fact it may be
the level of activity is the same for the two profitable.
Copyright © 2024 McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 13
,13-10 If a company decides to make a part or process where joint products can be recognized
provide a service internally rather than buying it as individual products.
from an outside vendor, then a portion of the
company’s facilities have to be used to make 13-14 Joint costs should not be allocated
that part or provide that service. The company’s among joint products for decision-making
opportunity cost is measured by the benefits purposes. If joint costs are allocated among the
that could be derived from the best alternative joint products, then managers may think they
use of the facilities. are avoidable costs of the end products.
However, the joint costs will continue to be
13-11 Any resource required to make products incurred as long as the process is run regardless
and get them into the hands of customers could of what is done with one of the end products.
be a constraint. Some examples are machine Thus, when making decisions about the end
time, direct labor time, floor space, raw products, the joint costs are not avoidable and
materials, investment capital, supervisory time, are irrelevant.
and storage space. While not covered in the
text, constraints can also be intangible and often 13-15 If the incremental revenue from further
take the form of a formal or informal policy that processing exceeds the incremental costs of
prevents the organization from furthering its further processing, the product should be
goals. processed further.
13-12 Assuming fixed costs are not affected, 13-16 Most costs of a flight are either sunk
profits are maximized when the total costs, or costs that do not depend on the
contribution margin is maximized. A company number of passengers on the flight.
can maximize its total contribution margin by Depreciation of the aircraft, salaries of personnel
focusing on the products with the greatest on the ground and in the air, and fuel costs, for
amount of contribution margin per unit of the example, are the same whether the flight is full
constrained resource. or almost empty. Therefore, adding more
passengers at reduced fares when seats would
13-13 Joint products are two or more products otherwise be empty does little to increase the
produced from a common input. Joint costs are total costs of operating the flight, but increases
the costs incurred up to the split-off point. The the total contribution and total profit.
split-off point is the point in the manufacturing
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 13 199
,Chapter 13: Applying Excel
The completed worksheet is shown below.
Copyright © 2024 McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 13
, Chapter 13: Applying Excel (continued)
The completed worksheet, with formulas displayed, is shown below.
Copyright © 2024 McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 13 201
