Question

Canned Foods Unlimited is deciding whether to sell its canned corn in whole kernels or to process it further into creamed corn. The cost of producing whole kernel corn is $.20 per can, and the can sells for $.40. Additional processing costs to produce the creamed corn are $.06 per can, and each can sells for $.45. Which of the following costs are relevant in this decision to sell or process further?

		$.20 production cost
		$.06 additional processing cost
		both A and B are relevant
		neither A nor B is relevant

The decision to drop a product line is based the following factors, except:

	a.	contribution margin lost is less than fixed costs avoided
	b.	contribution margin lost is greater than fixed costs avoided
	c.	decline in sales of the company's other products
	d.	loss of customers who purchase other products

In a make-or-buy decision, the relevant costs are typically?

	a.	costs of buying the product from the outside source
	b.	variable costs of making the product that can be avoided by buying it
	c.	any avoidable fixed costs, and opportunity costs incurred by forgoing production of another product
	d.	all are typically costs

Answer 1

Relevant cost = Additional processing cost

= $0.06

Option b. is correct answer.