identify all relevant costs or revenue that are applicable to the decisions stated below: Reject a...

identify all relevant costs or revenue that are applicable to the decisions stated below:

Reject a special order. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

Contribution margin of product.

Sales revenue at split-off point.

Interference with other production.

Contribution margin per unit of limited resource.

Selling price of supplier.

Expert Solution

Relevent costs are the costs that is specific to a management decision. that it it in includes the incremental cost or revenue that relates the specific decision to be taken.

1. contribution margin of product : this lets the company evaluate the profitability of its individual products therefore it is a relevent to the decision to be taken. This determines the contribution gained or lost by accepting or rejecting the special order.

2. Sales revenue at the split off point : at this point production of joint product ceases and further production of seperate products start. therefore the sales revenue at the split off is crucial in determining wether further production in profitable. In the light of the above question it relevent is determinig the acceptance or rejection of special order

3. Interfearence with other production : when production for the special order interferes with the normal production and where the production capacity is limited . cetain amount of normal production has to be forgone this results in opportuinity loss . therefore the contribution from sale of normal production and special order sale is to be compared to determine which is better off. therefore it is relevent in the decision making.

4.contribution margin per unit of a limited resource : When the resources are limited it is to be brought out from the market specially to service the special order mentioned in the question. therefore it is an out of the pocket cost which is relevent to the decision

if in case the resources were not limited it would be irrelevent as the company need buy resources specifically for the special order.

5. selling price of supplier : the selling price the supplier charges for the products is critical in deciding its profitablity and in the finding the incremental cost or revenue by accepting or rejecting the offer . Therefore it is relevent.

ekkarill92 answered 2 years ago

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