Relevant Cost Terms: Matching (LO1)

A company that produces and sells 4,000 units per month, with the capacity to produce 5,000 units per month, is evaluating a one-time, special order for 2,000 units from a large chain store. Accepting the order will increase variable manufacturing costs and certain fixed selling and administrative costs. It will also require the company to forego the sale of 1,000 units to regular customers.

Required Presented below are a number of statements related to the proposal followed by a list of cost terms. For each statement, select the most appropriate cost term. Each term is used only once.

Statements 1. Increased revenues from special order 2. Lost contribution margin from foregone sales to regular customers 3. Revenues from 4,000 units sold to regular customers 4. Variable cost of 4,000 units sold to regular customers 5. Increase in fixed selling and administrative expenses 6. Cost of existing equipment used to produce special order 7. Salary paid to current supervisor who oversees manufacture of special order 8. Increased variable costs of special order Cost terms

a. Irrelevant variable outlay cost

b. Irrelevant fixed outlay cost

c. Sunk cost

d. Relevant variable outlay cost

e. Relevant fixed outlay cost jf. Opportunity cost g. Relevant revenues h. Irrelevant revenues