Tiffani Franks is trying to decide which of two different kinds of candy to sell

Question

Tiffani Franks 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. Franks 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 $ 5.00 Cost per box Cost per box Sales commissions per box Rent of display space Advertising 1.00 1,500.00 3,000.00 Sales commissions per box Rent of display space Advertising S 8.00 1.00 1,500.00 2,000.00 Required ldentify each cost as being relevant or irrelevant to Ms. Franks's decision and indicate whether it is fixed or variable relative to the number of boxes sold Cost Items Relevance Behavior Cost per box Sales commissions per box Rent of display space Advertising

Explanation / Answer

Costs which are same under both the alternatives will be irrelevant, else they will be relevant.

Cost which remain varies in accordance with units sold is variable.

cost which does not vary in accordance with units sold is fixed cost.

Cost items Relevance Behaviour Cost per box Relevant Variable Sales comission per box Irrelevant variable Rent of display space Irrelevant fixed Advertising Relevant Fixed.

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