COST ACCOUNTING
INFORMATION FOR DECISION MAKING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Which of the following would be a relevant cost that would need to be considered for pricing a special order?
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Existing fixed manufacturing overhead
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Additional set-up costs for the special order
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. Non-manufacturing costs that will not change even if the special order is accepted
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Explanation:
Detailed explanation-1: -The correct answer is c: replacement cost.
Detailed explanation-2: -The relevant costs are future cash flows, incremental costs, opportunity costs, and avoidable costs.
Detailed explanation-3: -Therefore, the relevance of cost is determined by its potential effect(s) on the decision.
Detailed explanation-4: -In a make or buy decision relevant costs include: direct materials, direct labor, variable overhead and sometimes incremental costs. For example, if a company decides to increase the output of production by purchasing another equipment that they can use, the cost of that certain equipment is the relevant cost.
There is 1 question to complete.