How does a company determine whether to sell a product as is or process it further?

How does a company determine whether to sell a product as is or process it further?

Choosing whether to sell a product as is or to process it further involves comparing the selling price without further processing (at split-off) to the net price (selling price less additional processing costs) that would be obtained if the product were processed further.

What are the main criteria that need to take in to account in determining whether a cost is relevant for business decision making?

In order to meet the criteria for relevancy, a cost must have two criteria that include they affect the future and they differ among alternatives. Other group of theorists asserted that the relevant costs are applicable to decision. Costs are relevant, if they direct the executive towards the decision.

How do we know if we have to drop or retain a certain segment?

When deciding if a company should drop an unprofitable segment, the company should create a segment contribution margin income statement. If the contribution margin is positive, the company should consider direct and common fixed costs, what to do with freed capacity, and the effect on sales of other products.

Is depreciation an avoidable cost?

An avoidable cost is a cost that is not incurred if the activity is not performed. An unavoidable cost is a cost that is still incurred even if the activity is not performed. Some examples include depreciation on equipment, property taxes, lease payments, interest expense, etc.

When replacing an old machine with a new machine the book value of the old machine is a relevant cost?

When replacing an old machine with a new machine, the book value of the old machine is a relevant cost. Replacing an old machine will increase operating income in the long run, but NOT for this year. A manager may choose not to replace the machine if performance evaluations are based on performance over a single year.

What will most likely occur if a company eliminates an unprofitable segment when a portion of fixed costs are unavoidable quizlet?

What will most likely occur if a company eliminates an unprofitable segment when a portion of fixed costs are unavoidable? The company’s variable costs will increase.

Why sunk costs are considered irrelevant costs?

Sunk costs are those costs that happened and there is not one thing we can do about it. These costs are never relevant in our decision making process because they already happened. These costs are never a differential cost, meaning, they are always irrelevant.

Are sunk costs relevant?

A sunk cost is not a relevant cost for decision making. Whether a cost is relevant or irrelevant depends on the decision at hand. A cost may be relevant to one decision and that same cost may be irrelevant to another decision. A sunk cost, however, is always an irrelevant cost.

Why are sunk costs not considered relevant when choosing among alternatives?

Past costs, also known as sunk costs, are not relevant in decision making because they have already been incurred; therefore, these costs cannot be changed no matter which alternative is selected. In other situations, costs do not differ between alternatives.

Which of the following costs would be considered sunk costs?

A sunk cost refers to a cost that has already occurred and has no potential for recovery in the future. For example, your rent, marketing campaign expenses or money spent on new equipment can be considered sunk costs.

Why is depreciation a sunk cost?

Depreciation, amortization, and impairments also represent sunk costs. In any case, the cost of the equipment was incurred in the past, and the company cannot change its original cost now or in the future. Important to note, sunk costs do not have to be fixed in nature.

Why are sunk costs irrelevant in deciding whether to sell a product in its present condition or to make it into a new product through additional processing?

Sunk costs are those costs that happened and there is not one thing we can do about it. These costs are never relevant in our decision making process because they already happened! These costs are never a differential cost, meaning, they are always irrelevant.

What are sunk costs in sell or process further decision?

Factoring in a Sell-or-Process-Further Decision. A manufacturing firm may have a number of sunk costs, such as the cost of machinery, equipment, and the lease cost of a factory. Sunk costs are excluded from a sell-or-process-further decision; this concept applies to products that can be sold as they are or can be processed further.

Is the cost of the factory lease a sunk cost?

The cost of the factory lease and machinery are both sunk costs and are not part of the decision-making process. If a sunk cost can be eliminated at some point, it becomes a relevant cost and should be a part of business decisions about future events.

Can I claim depreciation on equipment that I rent or lease?

Yes, as long as you are responsible for making payments on the asset, you can take a depreciation deduction. Return to top. [6] Can I claim depreciation on equipment that I rent or lease for my business? If you are renting or leasing an asset, you can deduct your monthly rent/lease costs as an expense.

Is depreciation a past or future transaction?

Answer Wiki. Depreciation is a charge on the asset for various reasons. Having said this, the deduction is to a cost (though recognized as an asset)which is already incurred. So it is a past transaction. Any charge on such, would hardly have any impact on the decisions of future. Hence, the cost is already sunk i.e. incurred or lost.