Which of the following statements is true when making a decision between two alternatives?
A)Variable costs may not be relevant when the decision alternatives have the same activity levels.
B)Variable costs are not relevant when the decision alternatives have different activity levels.
C)Sunk costs are always relevant.
D)Fixed costs are never relevant.

Question

Quizplus · Accepted Answer

Variable costs are relevant when making a decision between two alternatives only if the activity levels vary between the two alternatives. If the activity levels are the same, then the variable costs would also be the same and therefore not a relevant factor in the decision making process. Sunk costs, such as past expenses that cannot be recovered, are not relevant. Fixed costs are relevant when making decisions, as they will be incurred regardless of the alternative chosen.

Which of the Following Statements Is True When Making a Decision