When Using Relevant Cost Analysis, It Is a Common Mistake

question 39

Multiple Choice

When using relevant cost analysis, it is a common mistake for untrained managers to include in their analysis all the following except:

• A) Sunk costs.
• B) Allocated fixed costs.
• C) Average fixed costs.
• D) Unit variable costs.
• E) Total fixed costs.

---

Definitions:

Sunk Costs

Costs that have already been incurred and cannot be recovered, which should not affect future business decisions.

Mixed Cost

A cost that contains both variable and fixed cost components, changing in total with volume but remaining constant per unit.

Variable Cost

Costs that change in proportion to the good or service that a business produces, such as raw materials and direct labor expenses.

Fixed Cost

Expenses that do not change with the level of production or sales over a certain period, such as rent or salaries.