Consider the Following Costs and Decision-Making Situations

question 85

Multiple Choice

Consider the following costs and decision-making situations:
I. The cost of existing inventory, in a keep vs. disposal decision.
II. The cost of special electrical wiring, in an equipment acquisition decision.
III. The salary of a supervisor who will be transferred elsewhere in the organization, in a department-closure decision.
Which of the above costs is (are) relevant to the decision situation noted?

• A) I only.
• B) II only.
• C) III only.
• D) I and II.
• E) II and III.

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Definitions:

Allowance Method

An accounting technique used to estimate and anticipate uncollectible accounts receivable and bad debts.

Reinstated Account

An account previously closed or inactivated that has been restored to active status.

Uncollectible Receivables

Debts that are deemed unrecoverable by a company after exhaustive attempts to collect them, often written off as an expense.

Adjusting Entry

Journal entries made in accounting records at the end of an accounting period to allocate income and expenses to the period in which they actually occurred.