ACCA Applied Knowledge · Management Accounting · Cost classification
A manager is deciding whether to accept a special order. Last year the company spent $15,000 on market research for this product line, which cannot be recovered. Which statement about this $15,000 is correct for the decision?
The $15,000 is a sunk cost because it has already been spent and cannot be recovered whichever option is chosen. Sunk costs are not relevant to decision making and should be ignored when evaluating the special order.
- AIt is a relevant cost because it was incurred for this product
- BIt is a sunk cost and should be ignoredCorrect
- CIt is an opportunity cost and should be included
- DIt is a controllable cost and should be included as a fixed cost
Explanation
Costs already incurred and not recoverable are sunk costs. They do not change with the decision, so they are irrelevant. It is not an opportunity cost because no benefit is forgone by choosing the order.
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