Managerial Accounting Chapter 11-13

780 WordsJul 10, 20124 Pages
Managerial Accounting Chapters 11-13 Chapter 10 – 3 Relevant costs are costs that are avoidable by choosing another alternative. If a variable cost differs between alternatives in a decision, than it is relevant; however, it is not necessarily true that ALL variable costs are relevant. Chapter 10 – 7 Prentiss would need to isolate the unavoidable costs of the product line first. A decision of whether a product line or other segment should be dropped should focus on the differences in the costs and benefits between dropping or retaining the product line. Caution should be exercised when using reports in which common fixed costs have been allocated among segments. If these common fixed costs are unaffected by the decision of…show more content…
If the rate of return is less than the cost of capital, the company doesn’t earn enough to compensate its creditors and shareholders. Therefore, any project with a rate of return less than the cost of capital should be rejected. The cost of capital serves as a screening device. When the cost of capital is used as the discount rate in net present value analysis, any project with a negative NPV doesn’t cover the company’s cost of capital and should be disregarded. Chapter 11 – 6 NPV is the difference between the present value of an investment project’s cash inflows and the present value of its cash outflows. Yes, the NPV can be negative but this indicates an unacceptable capital investment in that its return is less than the required rate of return. Chapter 11 – 10 Yes, since the discount rate is higher the rate of return will be higher. Chapter 13 – 2 What is the basic purpose for examining trends in financial ratios and other data? Ratios provide indicators of how well the company and its business units are performing. Some of these ratios might be used in a balanced scorecard approach. The specific ratios selected depend on company’s strategy. For example, emphasizing responsiveness would closely monitor the inventory ratio turnover. For stockholder reporting, managers must pay attention to the financial
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