Which of the following constitutes an example of a cost which is not incremental, and therefore not relevant in an accept/reject decision?
A) A firm has a parcel of land that can be used for a new plant site or, alternatively, can be used to grow watermelons.
B) A firm can produce a new cleaning product that will generate new sales, but some of the new sales will be from customers who switch from another product the company currently produces.
C) A firm orders and receives a piece of new equipment which is shipped across the country and requires $25,000 in installation and set-up costs.
D) All of the above are not examples of incremental cash flows.
E) Answers a, b, and c are examples of incremental cash flows, and therefore, relevant cash flows.

Question

Quizplus · Accepted Answer

Incremental costs are additional costs that a company incurs when making a decision. In options A, B, and C, the costs or revenues are directly associated with the decision at hand, making them relevant and incremental.

Which of the Following Constitutes an Example of a Cost