1) Which of the following is false conerning relevant costs and relevant renuves
ID: 2719991 • Letter: 1
Question
1) Which of the following is false conerning relevant costs and relevant renuves?
A) Every decision deals with the future
B) Historical costs in themselves are irrelevant to a decision on future costs
C) Nothing can be done to alter past costs or revenues
D) Total differential costs include both relevant and irrelevant costs
E) Historical costs may be useful for predicting future costs
2) The variation in total costs between two alternatives is known as
A) Analyzed cost
B) Expected Cost
C) Predictable cost
D) Differential Cost
E) Irrelevant Cost
3) Reinstein decided to complete a fifth year of college instead of accepting a job with a public accounting firm at a beginning salary of $18,000 for the first year of employment. The tuition, food books, supplies and other direct costs of the extra year of college are estimated to be $8,000. Living expenses would be about. $9,000 per year for either situation. The opportunity cost of Reinstein's decision to attend college was:
A) $8,000
B) $18,000
C) $10,000
D) $26,000
Explanation / Answer
1 While determining Relevant cost and Relevant revenue historical cost should not be considered. Thus historical cost does not play any role in determining Relevant cost since it is a sunk cost and nothing can be done with it.
Therefore, Statement tha historical cost may be useful for predicting future cost is false.
Thus answer will be (F)
2. Differential cost means difference in cost between two alternatives. Thus answer will be (D) Differential cost
3. Opportunity cost means a potential benefit that is given up when one alternative is selected over another.
Income to be earned due to acceptance of job18000 and cost savings due to acceptance of job is 8000 therefore total opportunity cost will be 26000.
Thus answer will be (D) 26000
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