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A company's product range includes Product N. The costs relating to Product N are shown below:
The direct labour costs relate to specialists employed to work wholly and exclusively with Product N.
If the company stopped making Product N, the insurance overhead cost would cease, but overhead cost J would be unaffected. Both overheads are absorbed in direct proportion to material costs.
Which of the following costs should be used in the decision whether to stop making Product N?
Suggested Answer: A
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26 comments · newest first
EV
Evangelina
10 months ago
Wait, how can we ignore the insurance overhead if it ceases?
LU
Lura
10 months ago
Definitely leaning towards option C, seems like the best choice.
LE
Leslie
11 months ago
I think we should focus on the costs that will actually change.
LE
Leana
11 months ago
Isn't it surprising that overhead cost J remains unaffected?
RY
Ryan
11 months ago
The direct labour costs are crucial for this decision.
AM
Ammie
11 months ago
I feel like I might be mixing up the costs. Should we include the direct labor costs since they are specific to Product N? I hope I remember the absorption method correctly!
CE
Celeste
12 months ago
This question reminds me of a practice question where we had to calculate relevant costs for discontinuing a product. I think we need to focus on direct costs and any variable overheads.
LA
Laura
12 months ago
I’m a bit unsure about the overhead costs. If insurance ceases but overhead cost J remains, does that mean we only consider the variable costs?
VE
Verdell
12 months ago
I remember we discussed how to identify relevant costs for decision-making. I think we should exclude fixed costs that won't change if we stop Product N.
SA
Salome
1 year ago
I'm feeling pretty confident about this one. The relevant costs are the direct material, direct labor, and the insurance overhead that would be eliminated. I'll calculate those and compare the options to determine the best answer.
AR
Ardella
1 year ago
Okay, I think I've got a handle on this. The key is to identify the relevant costs that would change if the company stopped making Product N. The insurance overhead cost would cease, but the other overhead cost would be unaffected.
JE
Jess
1 year ago
Hmm, I'm a bit confused by the different overhead costs and how they would be affected if the company stopped making Product N. I'll need to make sure I understand that part clearly before answering.
PA
Paris
1 year ago
This looks like a tricky cost accounting question. I'll need to carefully analyze the information provided and think through the relevant costs to include in the decision.
TA
Taryn
1 year ago
Haha, this reminds me of that time my boss tried to explain cost accounting to me. I just nodded and smiled, pretending to understand. But hey, at least I got the job done, right? Anyway, let's see what we've got here. Seems like we need to do some good old-fashioned number crunching to figure this out.
ON
Oneida
1 year ago
That's a good point, Dewitt. We should definitely take that into consideration as well.
DE
Dewitt
1 year ago
But what about the insurance overhead cost that would cease if we stop making Product N?
LE
Leila
1 year ago
I agree with Oneida. Those costs are directly related to Product N.
RE
Reena
1 year ago
Well, this is a classic cost accounting question. Gotta separate the fixed and variable costs, and figure out which ones are relevant to the decision. Personally, I'd go with the answer that minimizes the costs we'd be left with if we stopped making Product N. Can't be leaving money on the table, you know?
SU
Sunshine
1 year ago
A: I think we should consider the direct labour costs for specialists.
ON
Oneida
1 year ago
I think we should consider the direct labour costs for specialists employed to work with Product N.
DO
Dorinda
1 year ago
Hmm, this is a tricky one. I'm going to need to really think this through. The key is understanding which costs would actually be affected if we stopped making Product N. Can't just look at the total costs, gotta be strategic about it.
MA
Marcelle
1 year ago
A) $910,100
EM
Emogene
1 year ago
Okay, let's see. This question is all about deciding whether to stop making Product N. The costs we need to consider are the direct labor costs and the overhead costs that would be affected if we stopped making it. The insurance overhead cost would cease, but the other overhead cost would remain. Looks like we need to calculate the total relevant costs and compare the options.
PA
Pamela
1 year ago
C) $944,100
VE
Verda
1 year ago
B) $850,000
EL
Eladia
1 year ago
A) $910,100