Lake City Plastics currently produces plastic plates and silverware. The company is considering expanding its product offerings to include plastic serving trays. Which of the following are cash flows relevant to the new product? I. molds needed to form the serving trays
II) projected increase in plate and silverware sales if the trays are produced
III) a portion of the production manager's current annual salary of $75,000
IV) raw materials used in the production of the serving trays

Question

Quizplus · Accepted Answer

I and IV are relevant cash flows because they represent the costs associated with producing the new product. II is relevant because it represents the potential increase in revenue that would result from producing the new product. III is not relevant because it is not directly associated with the new product, but rather reflects a sunk cost that must be paid regardless of whether or not the company decides to produce the serving trays.

Lake City Plastics Currently Produces Plastic Plates and Silverware