Week 7

Question 1

Limiting factor analysis and associated method:

Answer 1

when faced with scarce resources which are not sufficient to meet sales demand a decision gas to be made as to how to use the resources effectively and profitably

method:

• identifying the limited factor
• work out contribution per scarce resource
• rank and make in order

Question 2

underlying accounting approach for:

1. long term decisions
2. short term decisions

Answer 2

long-term: absorption costing

short-term: marginal costing

Question 3

incremental cost/revenue meaning:

Answer 3

cash flow must arise as a direct result of the decision

Question 4

differential cost meaning

Answer 4

an incremental amount of a cost as a result of a decision

Question 5

notional non-relevant cost meaning

Answer 5

refers to a common fixed cost which has been allocated or apportioned to a decision