SOLUTION: ACCT 301 Saudi Electronic University – Non-Routine Decisions and Relevant Costs

Hello again. This is our output. I hope you are having a great time today. Dont forget to invite me to work with you again in the future. Thank you.Relevant Costing AssignmentName:Subject:Instructor’s Name:Question 1:Give a numerical example of non routine decision, Determine the relevant costsfor this non routine decision and discuss the analysis (quantitative and qualitative) required tomake the decision?A Non-routine Decision is a tactical decision made by managers which are non-repetitive.These are decisions made not on a day-to-day basis. These decisions usually involve issues that areoutside the normal operating procedures of a firm. The types of non-routine decisions are thefollowing; (1) accept or reject a special offer, (2) make or buy a product component, (3) sell orprocess further, (4) add or drop a segment or product line, and (5) product combination inmaximizing scarce resources.For the sake of this question, the writer chooses to determine the relevant cost for sellingor processing further. This non-routine decision involves whether a firm would sell a product orcontinue processing the product. The question now behooves the manager to find out whichdecision would derive the best revenue. The choice becomes based on an incremental analysiscomparing the additional revenues to be gained against the additional costs incurred as part of theadditional process that has to be done. For example, Product Y and Z are produced in the sameassembly line with the same process. At split-off point, Product Y is ready for selling because it isalready complete. Product Z is also complete and is ready for selling; however, it can still beprocessed further. The demand for Product Y is 5,000 and it is worth SAR 10 if sold at split-off. Onthe other hand, Product Z whose demand is 10,000 sells only at SAR 2.5 at split-off and if it isprocessed further, it will sell at SAR 5. Processing further will mean additional SAR 20,000 in costsafter split-off.Computing the project will give the company SAR 5,000 in incremental profits when itprocesses further at split point. What costs were relevant? The relevant cost for this decision is thetotal cost for processing the product further. In this case, the relevant cost is SAR 20,000. Theincremental income derived by subtracting the cost of processing further from the revenue that isgenerated from selling the product that has been processed further. A manager is expected to choosethe option which generates the most income or the least loss. However, there are qualitativeconsiderations that a manager has to consider like liquidity. The firm may need more liquid assets ata certain time so despite the incremental profit from processing further, the firm may need to sell atsplit-off to improve cash flows.Question 2:Which types of companies would most likely use a process costing system?Provide examples of two Saudi Companies.A process costing system describes a system used by firms that produce similar or identicalunits of product made in batches. It is an accounting methodology that accumulates manufacturingcost to the units produced (Averkamp, 2020). Mass production companies usually use processcosting system. In Saudi Ar…

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