Which of the Following Constitutes an Example of a Cost

question 128

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,and therefore relevant,cash flows.

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Definitions:

Purchase Price

The total cost incurred to acquire an asset, including the price of the asset itself along with any additional costs necessary to bring the asset to a usable state.

Treasury Stock

Stock that has been bought back by the issuing company, reducing the amount of outstanding stock on the open market.

Sold for Less

A situation where the selling price of goods or services is less than their cost or original value.

Cost

The amount of money required to purchase or produce something, including materials, labor, and overhead expenses.