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Hi Sir,
I type out the first sentence to make you easier to find the question:
”Robber Co manufactures control panels for burglar alarms, a very profitable product…..”I’m confused about the answer of question (a). In the alternative approach(Relevant costs), Avoidable depreciation and insurance costs were included as relevant costs. But isn’t depreciation never a relevant cost because it’s not cashflow? Please kindly help to explain, thank you!!!
I mean I know that it will indeed affect decision making, but is it correct to classify it as ‘relevant cost’? Thank you sir!!
You are correct in that it is not really a relevant cost. However there is really not any choice in attempting the question because depreciation and insurance are given as just one figure, and the specific part of the insurance cost is without question a relevant cost.
It was poor wording by the examiner 🙁
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