Distinction between relevance and cost behavior
Leah Friend is trying to decide which of two different kinds of candy to sell in her retail candy store. One type is a name-brand candy that will practically sell itself. The other candy is cheaper to purchase but does not carry an identifiable brand name. Ms. Friend believes that she will have to incur significant advertising costs to sell this candy. Several cost items for the two types of candy are as follows.
Brandless Candy | Name-Brand Candy | ||
Cost per box | $ 6.00 | Cost per box | $ 7.00 |
Sales commissions per box | 1.00 | Sales commissions per box | 1.00 |
Rent of display space | 1,500.00 | Rent of display space | 1,500.00 |
Advertising | 3,000.00 | Advertising | 2,000.00 |
Required
Identify each cost as being relevant or irrelevant to Ms. Friend’s decision and indicate whether it is fixed or variable relative to the number of boxes sold.
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