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Allocate each of these cost or revenue descriptors into the relevant or not relevant category RELEVANT NOT RELEVANT We spent $10,000 on a machine 3 years ago Revenue in option 1 is $5, and in option 2 is $6 Fixed costs are $2000 regardless. Materials for option 1 is $2.50, and for option 2 is $2.50 If we didn't spend $1,000 on a machine upgrade, we could buy more advertising

Allocate each of these cost or revenue descriptors into the relevant or not relevant category RELEVANT NOT RELEVANT We spent $10,000 on a machine 3 years ago Revenue in option 1 is $5, and in option 2 is $6 Fixed costs are $2000 regardless. Materials for option 1 is $2.50, and for option 2 is $2.50 If we didn't spend $1,000 on a machine upgrade, we could buy more advertising

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Allocate each of these cost or revenue descriptors into the relevant or not relevant category RELEVANT NOT RELEVANT We spent $10,000 on a machine 3 years ago Revenue in option 1 is $5, and in option 2 is $6 Fixed costs are $2000 regardless Materials for option 1 is $2.50, and for option 2 is $2.50 If we didn't spend $1,000 on a machine upgrade, we could buy more advertising
Transcribed Image Text:Allocate each of these cost or revenue descriptors into the relevant or not relevant category RELEVANT NOT RELEVANT We spent $10,000 on a machine 3 years ago Revenue in option 1 is $5, and in option 2 is $6 Fixed costs are $2000 regardless Materials for option 1 is $2.50, and for option 2 is $2.50 If we didn't spend $1,000 on a machine upgrade, we could buy more advertising
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Step 1: Introduction to the question:

Relevant costs and revenues are those financial items that directly affect a decision. In other words, they are essential in making informed choices because they differ between available options or courses of action. These costs and revenues influence the outcome of a decision and are taken into consideration when evaluating alternatives.

Not relevant costs and revenues are those that do not influence a decision. They remain constant across various options and, therefore, do not impact the final outcome. These costs and revenues are typically excluded when analyzing choices as they do not affect the decision-making process.


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