Q1) Which of the following cost is NOT relevant to decision making?

a) sunk costs
b) costs that are common to all decision alternatives
c) differential costs
d) both and b
e) all of the above

Q2) Acme Brands is considering dropping one of its mediocre performing products. If dropped, Acme can immediately eliminate $20,000 of the fixed costs. $10,000 of the fixed costs can be re-assigned to another product where it will result in an increase of $12,000 in contribution margin for that product. Calculate the financial advantage or disadvantage of dropping the product given its current performance:

Sales $100,000
Variable costs 60,000
Contribution margin 40,000
Fixed costs 50,000
Net operating loss $ (10,000)