Chapter 11, Problem 11.42P

1.

To determine

Relevant Cost:

Relevant cost is the avoidable cost which incurred at the time of the decision making process of the management. It means that the cost related to the decision making process is called relevant cost.

Irrelevant Cost:

Irrelevant cost is that cost which is not affected of the decision making process of the management because this cost are those which already has been incurred

Variable Cost:

The Variable cost is that cost which varies with increase or decrease in the level of production. The Variable cost of per unit remains same. Here, it can be said that variable cost has the positive relationship with output of production.

Fixed Cost:

The Fixed cost is that cost which does not change with increase or decrease in the level of the production, but per unit fixed changes with change in the level production. Examples of the fixed cost are rent, wages and insurance.

To determine: Number of the unit produce of product A, B and C.

2.

To determine

Operating Income:

The outcome of deduction of operating expense and depreciation from the gross income is called as operating income. The operating income realized before any payment pertaining to interest and taxes payable.

Opportunity Cost:

Opportunity cost is total of potential income and other benefits that are lost due to rejection of alternatives. These costs are considered to evaluate the multiple project or options available.

To determine: The maximum amount that W is will to pay.