Relevant incremental costs are added into relevant opportunity cost of capital to calculate

The correct answer is: A. purchase order costs

Relevant incremental costs are added into relevant opportunity cost of capital to calculate purchase order costs.

• Relevant incremental costs are the costs that change as a result of a decision.
• Relevant opportunity cost of capital is the return that could be earned on the capital if it were invested in another project.
• Purchase order costs are the costs of placing an order for goods, such as the cost of the purchase order itself, the cost of the time spent by the purchasing department processing the order, and the cost of the transportation of the goods.

When a company decides to purchase goods, it must consider the relevant incremental costs and the relevant opportunity cost of capital. The relevant incremental costs include the purchase order costs, the cost of the goods, and the cost of any shipping or handling charges. The relevant opportunity cost of capital is the return that could be earned on the capital if it were invested in another project. The company must compare the relevant incremental costs and the relevant opportunity cost of capital to determine whether it is profitable to purchase the goods.

If the relevant incremental costs are less than the relevant opportunity cost of capital, then it is profitable to purchase the goods. However, if the relevant incremental costs are greater than the relevant opportunity cost of capital, then it is not profitable to purchase the goods.

In the case of the question, the relevant incremental costs are the purchase order costs. The relevant opportunity cost of capital is the return that could be earned on the capital if it were invested in another project. The company must compare the relevant incremental costs and the relevant opportunity cost of capital to determine whether it is profitable to place an order for goods.

If the relevant incremental costs are less than the relevant opportunity cost of capital, then it is profitable to place an order for goods. However, if the relevant incremental costs are greater than the relevant opportunity cost of capital, then it is not profitable to place an order for goods.