Question 5 1 pts Nesmith Corporation is considering two alternatives: A and B. C

Question

Question 5 1 pts Nesmith Corporation is considering two alternatives: A and B. Costs associated with the alternatives are listed below Materials costs .. Processing costs Equipment rental Occupancy costs.... Alternative A $33,000 $38,000 $11,000 $18,000 Alternative B $53,000 $57,000 $11,000 $29,000 Are the materials costs and processing costs relevant in the choice between alternatives A and B? (lgnore the equipment rental and occupancy costs in this question.) Both materials costs and processing costs are relevant Only materials costs are relevant Neither materials costs nor processing costs are relevant Only processing costs are relevant

Explanation / Answer

Material costs include direct materials which are directly related to the production and hence these are relavant costs in decision making.

Processing costs include labor and overhead which are incurred if the production is carried and not incurred if the production is not carried. Therefore processing costs are also relevant in decision making.

Equipment rental and occupancy costs are irrelavant as these costs are incurrred whether the production is carried or not.

Hence the correct option is both material costs and processing costs are relevant.

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