Question

A simple relevant cost analysis is not appropriate for which type of decisions? A) sell or...

A simple relevant cost analysis is not appropriate for which type of decisions?

A) sell or process further decisions.

B) make or buy decisions.

C) capital expenditure decisions

D) short-term allocation of scarce resources decisions.

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Answer #1

Answer is C) Capital expenditure decisions.

Relevant cost analysis is not useful for capital expenditure decision. Capital expenditure decision are long term oriented hence the nature of cost may change from irrelevant to relevant in the long term. Hence relevant cost is not appropriate for capex evaluation. However relevant cost analysis is needed for evaluation of sell or process further, make or buy and short term allocation of scare resources decisions like machine hours or labor hours.

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