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Hello, Good afternoon : )
The Telephone Co (T Co) is a company specializing in the provision of telephone systems for
commercial clients. There are two parts to the business:
• Installing telephone systems in businesses, either first time installations or replacement
installations;
• Supporting the telephone systems with annually renewable maintenance contracts.
T Co has been approached by a potential customer, Push Co, who wants to install a telephone
system in new offices it is opening. Whilst the job is not a particularly large one, T Co is hopeful
of future business in the form of replacement systems and support contracts for Push Co. T Co
is therefore keen to quote a competitive price for the job. The following information should be
considered:
1. One of the company’s salesmen has already been to visit Push Co, to give them a
demonstration of the new system, together with a complimentary lunch, the costs of which
totaled $400What is the relevant cost here ?
The answer key states NIL , but i don’t understand why …
Pls clarify
Thank you !I found this further on in the question … 4. Two visits would need to be made by the site inspector to approve the completed work. He is an independent contractor who is not employed by T Co, and charges Push Co directly for the work. His cost is $200 for each visit made..
The 200 won’t be a relevant cost would it ?
To be a relevant cost the cost has to be avoidable, future-based and a cash flow. Since the demonstration visit and lunch has already been made it is a past cost and therefore not relevant.
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