We have presented two key lessons so far in this chapter: relevant information and misuse of unit costs. We cannot stress enough how important it is to clearly understand the definition and concept of relevant information. It is also important to understand why the use of unit fixed costs can lead to an incorrect analysis.

Suppose you are a manager in a company that makes small appliances. You are deciding whether to accept or reject a special order for 1,000 units. (Assume there is sufficient excess capacity available for the order.)

1. Which of the following costs are relevant:

(a). Parts for the order.

(b). Supervisor’s salary.

(c). Assembly equipment depreciation.

(d). Power to operate the assembly equipment?

2. Suppose the total unit manufacturing cost for the 1,000 units is €100 per unit. We determined this amount by dividing the total cost by 1,000 units. If the customer decided to double the order to 2,000 units, which costs listed in number 1 would change? Which costs per unit would change? Would the total cost of the order double?