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Hi,
The following statement about relevant costing is true.
“Common costs are only relevant if the viability of the whole process is being assessed.”
Explanation:-
Common costs are relevant if the whole process if being evaluated, however, they are not relevant to a further processing decision.I don’t understand even after reading the explanation.
You have not said where you found this question but it is obviously referring to join product costing (which is very rarely relevant for Paper PM because it is examined in Paper MA (was F2)).
If several products are made in the same process and then have further work done on them after they leave the process, then the costs incurred in the joint process (the common costs) are relevant when considering the whole process. However if we are deciding whether or not it is worth doing extra work (and incurring extra costs) on one of the products after it has left the joint process then only the extra costs are relevant for this decision.
If you are still not clear then do watch the free Paper MA lectures on joint product costing.
Thanks.
Is common cost also known as joint cost?
I found the question while doing PM CBE “FULL SPECIMEN EXAM” on ACCA website.
It is on Section B (Question 30).
Yes – common costs are the same as joint costs 🙂
Thanks for saying which question it is. It is a slightly strange question because although the earlier questions relate directly to the scenario, this one doesn’t and is more general.
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