BUSINESS ADMINISTRATION
ACCOUNTING FOR MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A fixed‑cost element of an identical amount that is common among all alternatives is essentially irrelevant.
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Fixed cost per unit is equal to total fixed costs divided by a selected volume level.
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The contribution approach offers more detailed information than does the absorption approach.
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Fixed cost per unit is a necessary piece of information in the decision‑making process.
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Detailed explanation-1: -The only fixed costs that should be considered are fixed costs that are incurred because of the special order.
Detailed explanation-2: -Answer and Explanation: The answer is: 1) Fixed costs are sometimes relevant for decision making . True, fixed costs are sometimes relevant for decision making because they are the costs that can’t be changed in the short-term.
Detailed explanation-3: -Sunk costs are those which have already been incurred and which are unrecoverable. In business, sunk costs are typically not included in consideration when making future decisions, as they are seen as irrelevant to current and future budgetary concerns.
Detailed explanation-4: -If a client wants a price quote for a special order, management only considers the variable costs to produce the goods, specifically material and labor costs. Fixed costs, such as a factory lease or manager salaries, are irrelevant because the firm has already paid for those costs with prior sales.