Question

Please select that whether below statements are correct or incorrect?

1. A difficulty that arises with respect to revenue when analyzing whether to drop a product or department is whether sales by one organizational unit can affect sales in another organizational unit.
2. A difficulty that arises with respect to cost analysis is that many product costs, such as machine and factory depreciation, are the result of sunk costs that often remain in whole or in part after the product is discontinued.

Answer 1

The correct statement is option 2.

A difficulty that arises with respect to cost analysis is that many product costs, such as machine and factory depreciation, are the result of sunk costs that often remain in whole or in part after the product is discontinued.

Step-by-step explanation:

Cost analysis of a product is a system that is applied to check the component costs of a product with respect to the value created and appreciated by a customer.

The analysis aims to improve the value of the product with the most cost effective option available which will create a favorable pricing for end users without reducing value.

Sunk costs accrue during the pre production and production phase that can no longer be recovered. It is not like investment that can be accounted for.

Therefore, difficulty that arises with respect to cost analysis is that many product costs, such as machine and factory depreciation, are the result of sunk costs that often remain in whole or in part after the product is discontinued.