Question

All of the following are characteristic of relevant costs except:

A. They are generally variable.
B. They are not committed.
C. They are different in amount for different options.
D. They are costs that will be incurred in the future.
E. They are inventory-related costs.

Answer 1

E. They are inventory-related costs is not a characteristic of relevant costs. Relevant costs are future-oriented, generally variable, uncommitted, and differ between different options, while committed costs like rent are fixed and not relevant for future decisions.

Step-by-step explanation:

The characteristic of relevant costs that does not belong in the list indicated in the student's question is E. They are inventory-related costs. Relevant costs are those that will indeed occur in the future and differ between alternatives. They are the costs that decision-makers need to consider when making choices about future actions. In contrast, committed costs, such as a lease on property, become fixed costs that cannot change easily in the short term, although they may not be relevant for certain future decisions as they cannot be altered.

Relevant costs are generally variable and differ for different scenarios. They have not yet been incurred and are not set in stone like committed costs, which are often associated with fixed costs such as rent on a factory or retail space. Relevant costs play a critical role in making economic decisions about future production or pricing, unlike sunk costs which are already incurred and should not influence future business decisions.