Skip to content

ACCA Strategic Professional · Strategic Business Leader · Cost and management accounting

Zenith Retail's management accountant says that the cost of a market research report commissioned last quarter for $60,000, which is non-refundable, should be weighed in deciding whether to launch a new product. Which response is most consistent with relevant costing?

The report cost should be ignored because it is a sunk cost: it has already been spent and cannot be recovered whatever is decided. Relevant costing only considers future incremental cash flows, so past committed expenditure does not affect the launch decision.

  1. AIgnore it, because it is a sunk cost that cannot be changed by the launch decisionCorrect
  2. BInclude it, because it is a directly attributable cost of the product
  3. CInclude it as an opportunity cost of the research team's time
  4. DInclude it only in the proportion of the launch's expected revenue to total revenue

Explanation

The cost has already been incurred and is non-refundable, so it is the same whether or not the launch proceeds. It is therefore sunk and irrelevant. Treating it as attributable (option B) confuses cost tracing with decision relevance.

Did you get it right without looking?

One question tells you little. A timed set on Cost and management accounting shows your real accuracy, how long you take and where you lose marks.

Practise Cost and management accountingFree diagnostic mock

More Cost and management accounting questions