Question

The Shoe Box is considering adding a new line of winter footwear to its product lineup. When analyzing the viability of this addition, the company should include all of the following in its analysis with the exception of?

1) the expected revenue from winter footwear sales
2) increased taxes from winter footwear profits
3) cost of new display counters for the additional winter footwear
4) the research and development costs to produce the current winter footwear samples
5) any expected changes in the sales levels of current products caused by adding the new product line

Answer 1

The Shoe Box should consider several factors when adding a new line of winter footwear except for research and development costs to produce current samples, which are sunk costs and irrelevant to the decision.

Step-by-step explanation:

In analyzing the viability of adding a new line of winter footwear, The Shoe Box should consider several factors except for one. Among the factors listed, the company should indeed analyze expected revenue from winter footwear sales, the cost of new display counters for the additional winter footwear, research and development costs to produce the current winter footwear samples, and any expected changes in the sales levels of current products caused by adding the new product line. However, increased taxes from winter footwear profits are a result of the additional revenue and should typically be included in the analysis.

The main exception here is the research and development costs to produce the current winter footwear samples since these are sunk costs. These costs have already been incurred, regardless of the decision to launch the new product line or not, and thus should not be included in the analysis for the new product decision.