Question

Which of the following costs is NOT relevant to a special-order decision?

a.The direct labour costs to manufacture the special-order units.
b.The variable manufacturing overhead incurred to manufacture the special-order units.
c.The portion of the cost of leasing the factory that is allocated to the special order.
d.All of the above costs are relevant costs.

Answer 1

The portion of the cost of leasing the factory that is allocated to the special order is NOT relevant to a special-order decision.

Step-by-step explanation:

In a special-order decision, the relevant costs are the costs that will change as a result of accepting or rejecting the special order. These costs are important for decision-making because they directly affect the profitability of the special order. The cost of leasing the factory, which is a fixed cost, is not relevant to a special-order decision. This cost is independent of the level of production and will remain the same regardless of whether the special order is accepted or not. Therefore, the answer is (c) The portion of the cost of leasing the factory that is allocated to the special order. This is because the lease cost is a fixed cost and therefore not relevant to the decision for additional special-order production.