Consider the following costs and decision-making situations:
I. The cost of existing inventory, in a keep vs. disposal decision.
II. The cost of special electrical wiring, in an equipment acquisition decision.
III. The salary of a supervisor who will be transferred elsewhere in the organization, in a department-closure decision.
Which of the above costs is (are) relevant to the decision situation noted?
A) I only.
B) II only.
C) III only.
D) I and II.
E) II and III.

Question

Quizplus · Accepted Answer

The cost of special electrical wiring in an equipment acquisition decision is relevant because it is a future cost that will differ between alternatives. The cost of existing inventory (sunk cost) and the salary of a supervisor who will be transferred (no additional cost) are not relevant to the decisions noted.

Consider the Following Costs and Decision-Making Situations