Question 27 4 pts Maggie wants to start a small business selling ice cream to cu
ID: 2438338 • Letter: Q
Question
Question 27 4 pts Maggie wants to start a small business selling ice cream to customers at a nearby shopping mall. She can't decide if she wants to sell her ice cream out of a vendor stand outside the shopping area, or if she wants to rent a space indoors. The cost of a vendor stand is $3,000, and she believes she could sell 900 ice cream cones per month with the stand. The cost of renting a space inside the mall is $2,000 per month, and she believes she could sell 1,500 ice cream cones per month in the indoor space. In order to sell ice cream, Maggie will also have to get her Public Food Service certificate which costs $800. Which of the following is an irrelevant cost to Maggie as she makes her decision between the vendor stand and the indoor space? The cost of the Public Food Service certificate The cost of the vendor stand The cost of renting the indoor space The total cost of ice cream conesExplanation / Answer
Answer 27 -
Irrelevant cost are such costs which are not affected by any decision of the business. Such costs do not change with different decisions.
In the given question, THE COST OF THE PUBLIC FOOD SERVICE CERTIFICATE is an irrelevant cost to Maggie as she makes her decision between the vendor stand and the indoor space. Reason being, whether she sells icecreams out of a vendor stand or by renting a space inside the mall, she has to get her Public Food Service Certificate.
If Maggie decides to sell icecreams through vendor stand, the cost of the vendor stand is irrelevant in that case as it is sunk cost. But if she changes her decision to sell icecreams by renting a space inside the mall, then cost of a vendor stand becomes relevant. Similarly, if she decides to sell icecreams by renting space inside the mall, the cost of paying rent becomes irrelevant as rent is to be paid irrespective of icecreams to be sold. But if she changes her decision to purchase vendor stand, then the rent amount becomes relevant. If the irrelevant cost of one decision is relevant to different decisions, then it is to be considered.
The total costs of the icecream cones are directly related to production activity and are relevant costs.
Therefore the correct answer is option 1st - The cost of the Public Food Service Certificate.
Answer 26 -
Calculation of total overhead costs assigned to product A using Activity Based Costing =
Rate per activity cost pool × number of total activity related to a particular product
= Rate per filling order = $42
= Number of orders required by product A = 300 orders
1.Total orders cost of Product A =
$42 per order × 300 Orders
= $12600
2. Cost of total machine hours required by product A =
Rate per machine hour = $12
Total machine hours required by product A = 14000 hours
=Total cost of machine hours required by product A =
= Rate per machine hour × Machine hours required by product A
= $12 × 14000 hours
= $168000
Total overhead costs assigned to product A =
Total Order cost of Product A + Total cost of machine hours required by product A
= $12600 + $168000
= $180600
Therefore, the correct answer is option 1st = $180600
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