Which of the Following Constitutes an Example of a Cost

question 72

Multiple Choice

Which of the following constitutes an example of a cost which is not incremental, and therefore not relevant in an accept/reject decision?

• A) A firm has a parcel of land that can be used for a new plant site or, alternatively, can be used to grow watermelons.
• B) A firm can produce a new cleaning product that will generate new sales, but some of the new sales will be from customers who switch from another product the company currently produces.
• C) A firm orders and receives a piece of new equipment which is shipped across the country and requires $25,000 in installation and set-up costs.
• D) All of the above are not examples of incremental cash flows.
• E) Answers a, b, and c are examples of incremental cash flows, and therefore, relevant cash flows.

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Definitions:

Freight-Out

The cost of shipping goods to customers, which is typically recorded as a selling expense.

Production Budget

A plan that outlines the number of units to be produced within a specific period to meet anticipated sales and inventory needs.

Beginning Inventory

The value of goods available for sale at the start of an accounting period.

Administrative Expense

Expenses that are not directly tied to the production of goods or services, including salaries of executive officers, legal and office expenses.