Question

Frito-Lay, a division of PepsiCo, manufactures, markets and distributes a variety of snack foods, including Fritos corn chips, Lay’s potato chips, Cheetos cheese snacks, Doritos tortilla chips, and Quaker Chewy granola bars, just to name the most familiar products. Which of the following costs for Frito-Lay are avoidable costs:

1. Commission payments to Frito-Lay sales representatives.
2. All the costs associated with winning approval by the FDA to advertise Frito-Lay’s new cheese popcorn snack as a probiotic nutritional supplement.
3. Labor cost for installing two new plasma technology baking ovens at the St. Louis production plant.
4. Legal fees incurred in winning an antitrust lawsuit filed by rival company R. W. Garcia, who sued Frito-Lay for illegal price fixing of flax seed chips.

Answer 1

Avoidable costs are those costs that can be eliminated by eliminating the process with which they are associated.

Frito-Lay pay commission to its sales representatives for making sales.

If Frito-Lay eliminates any of the product it sells then sales commission associated with sale of such products will also be eliminated.

So,

Commission payments to Frito-Lay sales represemtatives is avoidable costs.

Hence, the correct answer is the option (A).