Multiple Choice
Which of the following is NOT necessary for budgets to be effective?
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1. Introduction to Accounting
Useful Information
Multiple Choice
Which of the following types of costs is most relevant in making short-term business decisions?
A
Allocated fixed costs that do not change with the decision
B
Historical costs from previous periods
C
Variable costs that will change as a result of the decision
D
Sunk costs that have already been incurred
Verified step by step guidance1
Understand the concept of relevant costs: Relevant costs are those costs that will be directly affected by a specific decision. They are future costs that differ between alternatives.
Review the types of costs mentioned: Allocated fixed costs, historical costs, variable costs, and sunk costs. Each type has distinct characteristics that determine its relevance in decision-making.
Analyze allocated fixed costs: These are fixed costs distributed across different departments or products. Since they do not change with the decision, they are not relevant for short-term decision-making.
Examine historical costs and sunk costs: Historical costs are past costs and sunk costs are costs that have already been incurred. Both are irrelevant for decision-making because they cannot be changed by future actions.
Focus on variable costs: Variable costs are costs that change directly with the level of activity or decision. Since they are affected by the decision, they are the most relevant for short-term business decisions.
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