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:

Predetermined Overhead Rate

A rate calculated before the accounting period begins, used to apply manufacturing overhead to products or job orders.

Direct Labor-hours

The total hours worked by employees who are directly involved in the manufacturing or production process of goods.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to products, calculated based on estimated costs and activity levels.

Direct Labor-hours

The total hours worked by employees that can be directly associated with the production of goods or services.