Question

4. A company is trying to decide which product to manufacture. The following information is available:

Costs                                         Product A                        Product B

Direct Materials 1                 $3.00 per unit                 $3.50 per unit

Direct Materials 2                 $1.75 per unit                 $2.50 per unit

Direct Materials 3                 $0.75 per unit                 $.75 per unit

Direct Labor                            $1.00 per unit                 $1.10 per unit

Which product cost is irrelevant to the decision?

A) Direct Materials 1

B) Direct Materials 2

C) Direct Materials 3

D) Direct Labor

Answer 1

Irrelevant cost = Direct Materials 3

Explanation: Both the product i.e Product A & Product B have same Direct Materials 3 cost of $0.75 per unit. In this case, Direct Materials 3 does not effect the decision making due to same cost for both the product.

Option C) Direct Materials 3 is correct answer.