Management accountants are frequently asked to analyze various decision situations including the following:

(1) Alternative uses of plant space, to be considered in a make/buy decision.
(2) Joint production costs incurred, to be considered in a sell-at-split-off-versus-process-further decision.
(3) Research and development (R&D) costs incurred in prior months, to be considered in a product-introduction decision.
(4) The cost of a special device that is necessary if a special sales order is accepted.
(5) The cost of obsolete inventory to be considered in a keep-versus-disposal decision.

The costs described in situations 2, 3, and 5 above are:
A) Prime costs.
B) Sunk costs.
C) Discretionary costs.
D) Relevant costs.
E) Differential costs.

Question

Management accountants are frequently asked to analyze various decision situations including the following:

(1) Alternative uses of plant space, to be considered in a make/buy decision. 
(2) Joint production costs incurred, to be considered in a sell-at-split-off-versus-process-further decision. 
(3) Research and development (R&D) costs incurred in prior months, to be considered in a product-introduction decision. 
(4) The cost of a special device that is necessary if a special sales order is accepted. 
(5) The cost of obsolete inventory to be considered in a keep-versus-disposal decision.

The costs described in situations 2, 3, and 5 above are:
A) Prime costs.
B) Sunk costs.
C) Discretionary costs.
D) Relevant costs.
E) Differential costs.

Quizplus · Accepted Answer

The costs described in situations 2 (joint production costs), 3 (R&D costs incurred in prior months), and 5 (cost of obsolete inventory) are considered sunk costs because they have already been incurred and cannot be recovered or changed by any decision made now or in the future.

Management Accountants Are Frequently Asked to Analyze Various Decision Situations