Relevant Cost Terms: Matching (LO1)

A company that produces three products, M, N, and O, is evaluating a proposal that will result in doubling the production of N and discontinuing the production of O. The facilities currently used to produce O will be devoted to the production of N. Furthermore, additional machinery will be acquired to produce N. The production of M will not be affected. All products have a positive contribution margin.

Required Presented below are a number of phrases related to the proposal followed by a list of cost terms. For each phrase, select the most appropriate cost term. Each term is used only once.
Phrases 1. Cost of equipment to produce O 2. Increased variable costs of N 3. Property taxes on the new machinery 4. Revenues from the sale of M 5. Increased revenue from the sale of N 6. Contribution margin of O 7. Variable costs of M 8. Company president’s salary Cost terms

a. Opportunity cost

b. Sunk cost

c. Irrelevant variable outlay cost

d. Irrelevant fixed outlay cost

e. Relevant variable outlay cost -f- Relevant fixed outlay cost 2 Relevant revenues h. Irrelevant revenues