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Chapter 3 Cost concepts, classification and segregation MULTIPLE CHOICE Costs classification 1.The term relevant cost applies to all the following decision situations except the A.Acceptance of a special order.. B.Determination of a product price. C.Replacement of equipment. D.Addition or deletion of a product line. (cma) 1.B ?A situation where the term relevant cost does not apply. Relevant costs are those used in making decision. These costs have two characteristics – differential costs and future costs. The term relevant costs applies to the acceptance or rejection of a special sales order, replacement or retention of equipment, addition or deletion of a product line, and even in the determination of a product price. Among the choices given, however, choice-letter “b” is the best answer because relevant cost is least applied in the determination of regular selling price. 2.A decision-making concept, described as “the contribution to income that is foregone by not using a limited source for its best alternative use,” is called A.Marginal Cost.C.Potential Cost. B.Incremental Cost.D.Opportunity Cost. (cma) 2.D ?The term used to describe the contribution to income that is foregone by not using a limited source for its best alternative use. The benefit foregone or sacrificed for not using a limited resource for its best alternative use is called an opportunity cost, hence, choice-letter “d” is correct. Choice-letter “a” is incorrect because marginal cost is the increase in cost per unit of product. Choice-letter “b” is incorrect because incremental cost is the total increase in cost from an alternative to another. Choice-letter “c” is incorrect because potential cost may refer to future cost that may arise if an alternative is chosen. 3.In a decision analysis situation, which one of the following costs is not likely to contain a variable cost component? A.LaborC. Depreciation B.Overhead D.Selling.(cma) 3.C ?The cost that is not likely to contain a variable cost component. Choice-letter “c” is the correct answer. Depreciation expense, if the problem is silent, is a fixed cost, and therefore, not variable neither would contain a variable component. Choice-letter “a”, labor is academically treated as a variable cost. Choice-letter “b”, overhead, has both the variable and fixed cost components. Choice-letter “d”, selling expense, also has both the variable and fixed cost components. 46 When making a decision which type of cost is never relevant?1. Sunk costs (past costs) or committed costs are not relevant. Sunk, or past, costs are monies already spent or money that is already contracted to be spent. A decision on whether or not a new endeavour is started will have no effect on this cash flow, so sunk costs cannot be relevant.
Which of the following costs is generally considered irrelevant in decision making process?Relevant costs are costs that will be affected by a managerial decision. Irrelevant costs are those that will not change in the future when you make one decision versus another. Examples of irrelevant costs are sunk costs, committed costs, or overheads as these cannot be avoided.
Which of the following costs is considered as relevant for decision making purposes?Answer and Explanation: Correct Answer: Option a. variable costs. Variable costs are relevant for decision making as they change when a decision is made.
Which of the following costs are always irrelevant in decision making quizlet?Sunk costs are never relevant in decision making. Future costs that do not differ between the alternatives in a decision are avoidable costs.
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Which of the following costs is least likely to be relevant in deciding whether to accept a special order?
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