Stellar Packaging Products is considering diversifying its product line offerings into candy and other food bag packaging. This would require a major investment outlay for machinery and equipment. Give one example of different costs that would be considered relevant and one that would be considered irrelevant in making a future business decision for a company, and justify your choices.
ANSWER:
There are two types of cost that incur in any manufacturing process and they are variable and fixed costs.
Variable costs are those cost which vary with the change in the production like cost of materials, cost of labor etc. These costs are relevant for making decisions in the future and the reason is that these costs will not incur if additional goods are not manufactured.
Fixed costs are those cost which are fixed and do not change with the change in the production like rent of a factory building, depreciation of machinery etc. These costs are irrelevant for making decisions in future and the reason is these costs will incur whether the additional goods are produced or not.