Which of the Following Costs Should Be Excluded from Incremental

question 19

Multiple Choice

Which of the following costs should be excluded from incremental cash flows?

• A)The wage costs related to producing the new product.
• B)The cost of establishing a new plant.
• C)The consultant's fee for the feasibility study of the project.
• D)The plant operating costs.

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Definitions:

Variable Cost Method

An accounting approach where costs that vary directly with the level of production are allocated to products, influencing the cost of goods sold and inventory valuation.

Contribution Margin

The difference between the sales revenue of a product and its variable costs, indicating the amount contributing towards covering fixed costs and generating profit.

Standby Passenger

Standby Passenger refers to a traveler who does not have a confirmed reservation for a flight and waits for an available seat to become free due to cancellations or no-shows.

Contribution Margin

Contribution margin is a financial metric that represents the amount of revenue from sales that exceeds variable costs, indicating the portion of sales revenue that contributes to covering fixed costs and generating profit.