Answer (B) is correct. Discretionary costs are characterized by uncertainty about the relationship between input (the costs) and the value of the related output. Advertising and research are examples. They should be contrasted with engineered costs, that is, costs having a clear input-output relationship (e.g., the cost of direct materials).
Answer (B) is correct. Committed costs are those for which management has made a long-term commitment. They typically result when a firm holds fixed assets. Examples include long-term lease payments and depreciation. Committed costs are typically fixed costs.
Answer (B) is correct. Avoidable costs are those that may be eliminated by not engaging in an activity or by performing it more efficiently.
Answer (A) is correct. Abnormal spoilage is spoilage that is not expected to occur under normal, efficient operation conditions.
Answer (B) is correct. By-products are products of relatively small total value that are produced simultaneously from a common manufacturing process with products of greater value and quantity (joint products).
Answer (C) is correct. Rejected units that are discarded are classified as spoilage. Spoilage is separated into abnormal or normal spoilage. Normal spoilage is an inherent result of the normal production process. Abnormal spoilage is spoilage that is not expected to occur under normal, efficient operating conditions.
Answer (C) is correct. Joint products are two or more separate products generated by a common process from a common input that are not separable prior to the split-off point. Moreover, in contrast to by-products, they have significant sales values in relation to each other either before or after additional processing.
Answer (D) is correct. Abnormal spoilage is spoilage that is not expected to occur under normal, efficient operating conditions. The cost of abnormal spoilage should be separately identified and reported to management. Abnormal spoilage is typically treated as a period cost (a loss) because of its unusual nature.
Answer (D) is correct. Opportunity cost, also called implicit cost, is the maximum benefit forgone by using a scarce resource for a given purpose and not for the next-best alternative. An example is the wages forgone by attending college instead of working full-time. Opportunity costs are contrasted with outlay costs, which require actual cash disbursements.
Answer (B) is correct. Discretionary costs refer to fixed costs that are not absolutely necessary to operate in the current period. The level of these costs is subject to a decision made by management each period. A key characteristic of discretionary costs is that there is no clearly measurable relationship between input (the costs) and output. Advertising is a good example of a discretionary fixed cost.
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