Question

Your company currently sells oversized golf clubs. The Board of Directors wants you to look at replacing them with a line of supersized clubs. Which of the following is NOT relevant? Select one

a) Land you own with a market value of $7 k0,000 that may be used for the project
b) $350.000 you will pay to Fred Singles to promote your new clubs
c) $200.000 spent on research and development last year on oversized clubs
d) A reduction in revenues of $300,000

Answer 1

The not relevant cost when considering replacing oversized golf clubs with supersized clubs is the $200,000 spent on research and development last year on the oversized clubs, as it represents a sunk cost. The correct answer is option (c).

Step-by-step explanation:

The question asks to identify the item that is not relevant when considering replacing an existing line of oversized golf clubs with a new line of supersized clubs. The options given relate to financial and economic factors that would typically impact the decision-making process in a business setting when considering a new product line.

We want to identify costs that are sunk costs, meaning they have already been incurred and should not affect future decisions. The options provided are:

Options a), b), and d) are all prospective costs or values—they reflect future payments or potential future changes in revenue due to a switch in product lines. Option c), on the other hand, is a sunk cost; the money has already been spent on research and development for the oversized clubs. This cost will not be affected by the decision to switch to supersized clubs, and therefore it is not relevant to the decision at hand. Therefore, the correct answer is:

c) $200,000 spent on research and development last year on oversized clubs