a.            For each of the following costs, determine which are relevant or irrelevant to the decision at stake. State why you chose your answer in each case:

i.              OUR COMPANY has two-year lease for a lathing machine. The company is deciding on whether to use that machine on a new project which will last for the next month.

ii.             The CFO said, “We need to re-apportion our existing fixed costs.”

iii.            In evaluating the viability of a new product your company wants to introduce, you’ll have to rent an old cinema house to be used as a new production premises.

iv.           Additional fixed costs caused by a decision.

v.            OFY Ltd. has decided to keep an asset for use in the manufacture of a new product rather than selling it.

b.            Instead of buying your flight ticket in advance for Kumasi to Accra, you rush up to the Africa World Airlines (AWA) ticket counter at the Kumasi Airport to purchase one when the aircraft is leaving in 32 minutes’ time. AWA needs to consider the relevant costs to make a decision about your ticket price. The costs related to the flight include

I.             airport gate fee paid by the airline

II.            food and water that are served mid-flight

III.           labour to load your (passenger’s) luggage

IV.          aviation fuel

V.            salary and allowances for the entire aircraft’s crew.

Required:

Which of these costs are relevant or irrelevant to the decision of adding you as an extra passenger in determining the price you should buy the ticket at that last hour? In one sentence, justify your answer in each case.

Answer rating: 100% (QA)

Answer Relevant costs are the costs relevant to each decision making Please find below the classification of relevant and irrelevant costs along with ... View the full answer