Describe two potential problems that should be avoided in relevant-cost analysis

Question

Describe two potential problems that should be avoided in relevant-cost analysis. rk O A. 1. Focusing on total revenues and total costs (rather than unit revenue and unit cost). 2. Using unit-cost data directly 1. Assuming that all variable costs are relevant and all fixed costs are irrelevant. 2. Using unit-cost data directly. O B. c. 1. Focusing on total revenues and total costs (rather than unit revenue and unit cost). 2. Focusing on the relevance conce O D. 1. Focusing on the relevance concept. 2. Using total cost data directly. Click to select your answer ght 2017 P 3

Explanation / Answer

Option B is correct

Explanation:

1. All variable cost are not relevant in some cases. For example, variable selling expenses are not going to incur on next order , is not relevant cost in decision making.

All fixed costs are also not irrelevant. Sometimes fixed costs are increases due to production level increase, then these fixed cost become relevant in decision making

2. Do not assume unit cost data directly. It can mislead decision makers because it may include irrelevant costs and comparisons of unit costs computed at different output levels, which lead to wrong conclusions.

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