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A farmer grows potatoes for sale to wholesalers and to individual customers. The
farmer currently digs up the potatoes and sells them in 20 kg sacks. He is considering
a decision to make a change to this current approach. He thinks that washing the
potatoes and packaging them in 2 kg cartons might be more attractive to some of his
individual customers. Which of the following is relevant to his decision?(i) the sales value of the dug potatoes
(ii) the cost per kg of growing the potatoes
(iii) the cost of washing and packaging the potatoes
(iv) the sales value of the washed and packaged potatoes(A) (ii), (iii) and (iv) only
(B) (i), (ii) and (iii) only
(C) (i), (ii) and (iv) only
(D) (i), (iii) and (iv) onlyThe answer is D . but can you explain why ??
For the decision we are interested in the extra revenues and extra costs that there will be if they change their approach.
The cost of actually growing the potatoes will not change, whichever they do – so this is not relevant.
The sales value will change – so both the current value (i) and the new value (iv) are relevant.
The cost of washing is an extra cost – to this is relevant.Our free lectures on relevant costing will help you.
(Our lectures are a complete course for Paper F5 and cover everything needed to be able to pass the exam well.)
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