Which of the following statements regarding differential costs is (are) true?
(A) The full-cost fallacy occurs when a decision-maker includes fixed manufacturing overhead in the product's cost.
(B) When deciding whether or not to accept a special order, a decision-maker should focus on differential costs instead of full costs.
A) Only A
B) Only B
C) Neither of these is true.
D) Both of these are true.

Question

Quizplus · Accepted Answer

Differential costs are relevant for decision-making as they represent the costs that change with the decision. Statement A is true because the full-cost fallacy involves incorrectly including fixed costs that do not change with the decision. Statement B is true because focusing on differential costs helps in evaluating the true impact of accepting a special order.

Which of the Following Statements Regarding Differential Costs Is (Are)