(1) Materials can never have an opportunity cost whereas labour can

　　(2) The annual depreciation charge is not a relevant cost

　　(3) Fixed costs would have a relevant cost element if a decision causes a change in their total expenditure

　　(4) Materials already held in inventory never contribute to relevant cost

　　A 1 and 3

　　B 1 and 4

　　C 2 and 3

　　D 3 and 4

　　Solution：

　　In this case， a little thought will confirm that statement 1 is incorrect. Thorough preparation will mean that you know that materials can often have an opportunity cost. Once this decision has been made， choices A， and B can be eliminated， leaving either C or D as the correct choice. As statement 3 in included in both of these choices， it does not need to be considered. The question now requires a decision on whether choice 2 or choice 4 is correct.

　　Both of these relate to issues in which many candidates experience difficulty. How a particular candidate will progress from this point will depend on the knowledge they have brought into the exam as this will be the basis of their decision regarding statements 3 and 4.

　　Let's consider statement 3 first. The key issue is that a cost is relevant if the decision leads to a future incremental cash flow. Statement 3 effectively says this in the phrase 'a change in their total expenditure'. A candidate who recognises this will thus select choice C - if they are confident about their understanding of statement 3. If there is any doubt， or to provide reassurance， statement 4 can then be considered.

　　In this case， well-prepared candidates will recognise that if materials already held in inventory can be sold， using them will have a relevant cost - the benefit foregone by using them rather than selling them. Thus statement 4 is incorrect and choice 3 is the correct answer.