Osprey Company is trying to decide between the following two alternatives: $$\begin{array} { l c r }
&\text { Alternative A } & \text { Alternative B } \
\text { Projected reveruse } &\$ 50,000 & \$ 60,000 \
\text { Direct material } & 6,000 & 12,000\
\text { Assembly labor } &9,000 & 9,000 \
\text { Production supervisor's salary } & 10,000 & 10,000 \
\text { Facility-related costs } &\underline{ 10,000} &\underline{ 15,000}\
\text { Profit } & \underline{ \$ 15,000 }& \underline{ \$ 14,000}\
\end{array}$$ Which of the following conclusions can be drawn from this example?
A) Variable costs are always relevant for decision making.
B) Fixed costs are sunk and thus are never relevant for decision making.
C) Relevant costs may include variable costs and fixed costs.
D) None of these answers are correct.

Question

Osprey Company is trying to decide between the following two alternatives: $$\begin{array} { l c r } 
&\text { Alternative A } & \text { Alternative B } \
\text { Projected reveruse } &\$ 50,000 & \$ 60,000 \
\text { Direct material } &  6,000 & 12,000\
\text { Assembly labor } &9,000 & 9,000  \
\text { Production supervisor's salary } & 10,000 & 10,000   \
\text { Facility-related costs } &\underline{ 10,000} &\underline{  15,000}\
\text { Profit } &  \underline{ \$ 15,000 }& \underline{ \$ 14,000}\
\end{array}$$ Which of the following conclusions can be drawn from this example?
A) Variable costs are always relevant for decision making.
B) Fixed costs are sunk and thus are never relevant for decision making.
C) Relevant costs may include variable costs and fixed costs.
D) None of these answers are correct.

Quizplus · Accepted Answer

The example provided includes both fixed and variable costs, which means relevant costs can include both types of costs. Option A is incorrect because relevant costs can include fixed costs as well. Option B is incorrect because fixed costs can be relevant if they are avoidable in a decision. Option D is incorrect because there is a correct answer.

Osprey Company Is Trying to Decide Between the Following Two