Asked by Ariana Lisner on Jun 16, 2024
Verified
A company is considering the following alternatives: Option 1 Option 2 Revenues $330,000$330,000 Variable costs 120,00098,000 Fixed costs 165,000165,000\begin{array} { l r r } & \text { Option 1 } & \text { Option 2 } \\\text { Revenues } & \$ 330,000 & \$ 330,000 \\\text { Variable costs } & 120,000 & 98,000 \\\text { Fixed costs } & 165,000 & 165,000\end{array} Revenues Variable costs Fixed costs Option 1 $330,000120,000165,000 Option 2 $330,00098,000165,000 Which of the following are relevant in choosing between the alternatives?
A) Variable costs
B) Revenues
C) Fixed costs
D) Variable costs and fixed costs
Variable Costs
Expenses that vary directly with the level of production or sales volume, such as raw materials and direct labor.
Revenues
The gross increase in owner’s equity resulting from business activities entered into for the purpose of earning income.
Fixed Costs
Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance.
- Gain insight into the determinants impacting the patterns of cost and their importance in incremental evaluation.
Verified Answer
RR
RACHEL R.A PIONGJun 22, 2024
Final Answer :
A
Explanation :
Variable costs are relevant in choosing between the alternatives because they differ between Option 1 and Option 2, affecting the overall profitability of each option. Revenues and fixed costs are the same for both options, so they do not influence the decision.
Learning Objectives
- Gain insight into the determinants impacting the patterns of cost and their importance in incremental evaluation.