In a proposal to increase the production of clock radios, the sales managers of Rinaldo Electronics reported the total additional cost required to meet the increased production level. The increase in total cost is known as the
A) opportunity cost.
B) out-of-pocket cost.
C) controllable cost.
D) incremental cost.

Question

Quizplus · Accepted Answer

The increase in total cost required to meet the increased production level is known as the incremental cost, which is the cost of producing one additional unit of output. This type of cost is relevant for managerial decision making since it includes both variable and fixed costs that change as the level of production increases. Therefore, option D is the best choice. Option A (opportunity cost) refers to the cost of forgoing the next best alternative, option B (out-of-pocket cost) refers to the actual cash payments made for inputs, and option C (controllable cost) refers to the costs that can be managed and controlled by the management. However, none of these options accurately reflect the cost required to meet the increased production level.

In a Proposal to Increase the Production of Clock Radios