COST ACCOUNTING
INTRODUCTION TO COST ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Management has to decide between to alternative choices of action. Which of the following costs are relevant to their decision making?
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Sunk cost.
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Marginal cost.
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Opportunity cost.
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Both 2 and 3
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Explanation:
Detailed explanation-1: -A relevant cost (also called avoidable cost or differential cost) is a cost that differs between alternatives being considered.
Detailed explanation-2: -Opportunity Costs: Opportunity costs are factors in the decision-making process because they differ among alternatives.
Detailed explanation-3: -A fixed cost, such as rent, does not change in lock step with the level of activity. Conversely, a variable cost, such as direct materials, will change as the level of activity changes. Those few costs that change somewhat with activity are considered mixed costs.
Detailed explanation-4: -variable costs. Variable costs are relevant for decision making as they change when a decision is made.
There is 1 question to complete.