My Accounting Lab Summary Year 2
Chapter 7 the relevance and behaviour of costs
7.1 Relevant costs
Consider the followin statements
(1) When deciding between alternative courses o action, all past costs should be ignored
(2) When deciding between alternative courses o action, all future costs should be taken into account.
Which of these statement is/are correct? Only 1 because only future costs that vary with the decision
should be taken into account.
To be relevant to decision, a future cost must relate to which ONE of th following?
• The nature of the business
• The objectives of the business
• The survival of the business
• The structure of the business
- The historic cost of an asset owned is always irrelevant in any decision analysis as it does not relate to
the future nor does it vary with the decision.
- An opportunity cost is always a relevant cost.
- Opportunity cost is de ned as the cost incurred when one course of action prevents an opportunity to
derive some bene t from another course of action.
You own a collection of DVDs that you know that you could sell for £ 60. If you decide to kee them, the £
60 is known as which one of the followin costs? = opportunity cost.
7.1.7
Page 1 of 71
afi fig s :
g f f e p .
,7.1.9
Lees de vraag goed. Er staat dat Betas in frequent use zijn en dat het contract voor Omegas, waarvan de
inventory een jaar geleden gekocht is, niet meer in gebruik is en ook niet meer gebruikt wordt.
De minimum prijs is voor:
- betas: quantity x replacement cost (replacement cost omdat deze nog wel worden gebruikt) -> 650 x 14
= 9,100
- Omegas: quality x sales value (sales value omdat deze niet meer gebruikt worden, maar nog wel een
sales value hebben) -> 800 x 16 = 12,800
7.1.10
Het gaat er dus niet om hoeveel de werkers per uur krijgen uitbetaald, maar hoeveel geld er anders in
rekening zou worden gebracht bij de klant (20 pond per uur). -> dit bedrag wordt ook wel ‘engineer’s
charge-out rate to customers’ genoemd.
- Je kijkt dus naar de sales value (het bedrag waar het voor verkocht kan worden)
- Naar de kosten voor het extra materiaal dat nodig is
- Én of er vermeld staat welke uurprijs normaal gesproken in rekening wordt gebracht bij de klant.
- Opportunity costs are rarely taken into account in nancial accounting as they are not an incurred
expense. Wel in management (decision-making) accounting dus.
- Estimated sale value, a word that is commonly use in the exercises, is the same as opportunity costs.
Page 2 of 71
fi
, 7.2 Fixed costs, variable costs and semi variable costs
Which ONE of the following would be a xed cost of a manufacturer of lin cabinets?
A. The cost of plastic packaging to wrap the nished product
B. Electricity consumed by production equipment
C. The rent of the factory
D. The cost of metal needed to manufacture the ling cabinets
semi-variable cos will:
A: Be more than zero when output is zero and will increase in direct proportion to output
B: Be zero when output is zero and will increase in direct proportion to output
C: Be more than zero when output is zero and will increas directly, but no proportionately, with
output
D: Be zero when output is zero and will increas directly, but no proportionately, with output
Fixed costs don't tend to change with the level o output, but can increase with such factors as in ation.
Variable costs is best described as one that is constant per unit of output, irrespective of the level of
output.
- In a factory assemblin computers, the more computer completed, the more microchips must be bought
in.
- In cost volume pro t analysis, costs are either xed or which ONE of th following? = Variable
- Variable costs will increase as the level of output increases.
Which ONE of the following costs is likely to be semi-variable cost?
A Heat and light - some of it will be xed and some of it will vary with the level of activity
B Depreciation of buildings
C Buildings insurance
D RAW material costs
Consider the followin statements:
1. Large increases in activity often lead xed costs to increase in direct proportion to volume of output.
2 Semi-variable costs var directly, but no proportionately, with output.
Which of these statement is/are correct?
*Think what might happen if a business rents fo £100,000 per annum a factory with a maximum output of
200,000 units. If the business had to rent additional manufacturing space fo £150,000 per annum allowing
it to manufacture a furthe 300,000 units, what would the xed costs line loo like?
Page 3 of 71
A. fi tgg rs y fi fifi fi tfifiera f s fi e t efi g kr t fl
, 7.2.15
Which ONE of the following is most likely to be semi-variable (semi- xed) cost for a publishin business?
- Salaries for administration sta
- Rent payables for o ces
- Telephone charges for land lines: Telephone charges for landlines usually include a xed cost element
for the rental of the line and then a variable cost element for every call minute on the line.
- Royalties payable to authors.
Consider the following statements concerning xe costs:
1. Total fixed costs can vary according to the level of inflation.
2. Total fixed costs can vary according to the time period involved.
Are the above statements true o false? They are both true.
Page 4 of 71
ffi ff r a fi d fi fi g
Chapter 7 the relevance and behaviour of costs
7.1 Relevant costs
Consider the followin statements
(1) When deciding between alternative courses o action, all past costs should be ignored
(2) When deciding between alternative courses o action, all future costs should be taken into account.
Which of these statement is/are correct? Only 1 because only future costs that vary with the decision
should be taken into account.
To be relevant to decision, a future cost must relate to which ONE of th following?
• The nature of the business
• The objectives of the business
• The survival of the business
• The structure of the business
- The historic cost of an asset owned is always irrelevant in any decision analysis as it does not relate to
the future nor does it vary with the decision.
- An opportunity cost is always a relevant cost.
- Opportunity cost is de ned as the cost incurred when one course of action prevents an opportunity to
derive some bene t from another course of action.
You own a collection of DVDs that you know that you could sell for £ 60. If you decide to kee them, the £
60 is known as which one of the followin costs? = opportunity cost.
7.1.7
Page 1 of 71
afi fig s :
g f f e p .
,7.1.9
Lees de vraag goed. Er staat dat Betas in frequent use zijn en dat het contract voor Omegas, waarvan de
inventory een jaar geleden gekocht is, niet meer in gebruik is en ook niet meer gebruikt wordt.
De minimum prijs is voor:
- betas: quantity x replacement cost (replacement cost omdat deze nog wel worden gebruikt) -> 650 x 14
= 9,100
- Omegas: quality x sales value (sales value omdat deze niet meer gebruikt worden, maar nog wel een
sales value hebben) -> 800 x 16 = 12,800
7.1.10
Het gaat er dus niet om hoeveel de werkers per uur krijgen uitbetaald, maar hoeveel geld er anders in
rekening zou worden gebracht bij de klant (20 pond per uur). -> dit bedrag wordt ook wel ‘engineer’s
charge-out rate to customers’ genoemd.
- Je kijkt dus naar de sales value (het bedrag waar het voor verkocht kan worden)
- Naar de kosten voor het extra materiaal dat nodig is
- Én of er vermeld staat welke uurprijs normaal gesproken in rekening wordt gebracht bij de klant.
- Opportunity costs are rarely taken into account in nancial accounting as they are not an incurred
expense. Wel in management (decision-making) accounting dus.
- Estimated sale value, a word that is commonly use in the exercises, is the same as opportunity costs.
Page 2 of 71
fi
, 7.2 Fixed costs, variable costs and semi variable costs
Which ONE of the following would be a xed cost of a manufacturer of lin cabinets?
A. The cost of plastic packaging to wrap the nished product
B. Electricity consumed by production equipment
C. The rent of the factory
D. The cost of metal needed to manufacture the ling cabinets
semi-variable cos will:
A: Be more than zero when output is zero and will increase in direct proportion to output
B: Be zero when output is zero and will increase in direct proportion to output
C: Be more than zero when output is zero and will increas directly, but no proportionately, with
output
D: Be zero when output is zero and will increas directly, but no proportionately, with output
Fixed costs don't tend to change with the level o output, but can increase with such factors as in ation.
Variable costs is best described as one that is constant per unit of output, irrespective of the level of
output.
- In a factory assemblin computers, the more computer completed, the more microchips must be bought
in.
- In cost volume pro t analysis, costs are either xed or which ONE of th following? = Variable
- Variable costs will increase as the level of output increases.
Which ONE of the following costs is likely to be semi-variable cost?
A Heat and light - some of it will be xed and some of it will vary with the level of activity
B Depreciation of buildings
C Buildings insurance
D RAW material costs
Consider the followin statements:
1. Large increases in activity often lead xed costs to increase in direct proportion to volume of output.
2 Semi-variable costs var directly, but no proportionately, with output.
Which of these statement is/are correct?
*Think what might happen if a business rents fo £100,000 per annum a factory with a maximum output of
200,000 units. If the business had to rent additional manufacturing space fo £150,000 per annum allowing
it to manufacture a furthe 300,000 units, what would the xed costs line loo like?
Page 3 of 71
A. fi tgg rs y fi fifi fi tfifiera f s fi e t efi g kr t fl
, 7.2.15
Which ONE of the following is most likely to be semi-variable (semi- xed) cost for a publishin business?
- Salaries for administration sta
- Rent payables for o ces
- Telephone charges for land lines: Telephone charges for landlines usually include a xed cost element
for the rental of the line and then a variable cost element for every call minute on the line.
- Royalties payable to authors.
Consider the following statements concerning xe costs:
1. Total fixed costs can vary according to the level of inflation.
2. Total fixed costs can vary according to the time period involved.
Are the above statements true o false? They are both true.
Page 4 of 71
ffi ff r a fi d fi fi g
