Management accountants are frequently asked to analyze various decision situations including the following:
● The cost of a special device that is necessary if a special order is accepted.
● The cost proposed annually for the plant service for the grounds at corporate headquarters.
● Joint production costs incurred, to be considered in a sell-or-process-further decision.
● The costs associated with alternative uses of plant space, to be considered in a make/buy decision.
● The cost of obsolete inventory acquired several years ago, to be considered in a keep-versus-disposal decision.
The costs described in situations III and V above are examples of:
A) Prime costs.
B) Sunk costs.
C) Discretionary costs.
D) Relevant costs.
E) Opportunity costs.

Question

Management accountants are frequently asked to analyze various decision situations including the following:
●	The cost of a special device that is necessary if a special order is accepted. 
●	The cost proposed annually for the plant service for the grounds at corporate headquarters. 
●	Joint production costs incurred, to be considered in a sell-or-process-further decision. 
●	The costs associated with alternative uses of plant space, to be considered in a make/buy decision. 
●	The cost of obsolete inventory acquired several years ago, to be considered in a keep-versus-disposal decision. 
The costs described in situations III and V above are examples of:
A) Prime costs.
B) Sunk costs.
C) Discretionary costs.
D) Relevant costs.
E) Opportunity costs.

Quizplus · Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered. In situations III and V, joint production costs and the cost of obsolete inventory are past costs that should not affect future decisions.

Management Accountants Are Frequently Asked to Analyze Various Decision Situations