Canine Ltd bought a machine costing 20,000 two years ago. A contract has been signed to pay insurance costs of 200 per year. Depreciation is calculated at 5,000 per year. Maintenance depends on the number of hours that the machine is used and is currently 5 per 100 hours. The machine could be sold next week for 6000.

1. In order for a cost to be 'relevant', explain what criteria it should adhere to giving examples.
2. Complete the following table:

Cost	Relevant	Irrelevant
Machine cost 20,000		20,000
Insurance costs 200 per year	200
Depreciation 5,000 per year
Sales price 6,000

1. Describe what is meant by an opportunity cost and a sunk cost giving examples.
2. Discuss the different situations for when Traditional Absorption Costing and Relevant costing would be used to set selling prices.