A department accepts a new order from a customer. It has already incurred £100 for design costs. It has also incurred costs of £200 for visits by sales staff. If the order is accepted a quality inspector will be transferred from another department. The inspector earns £20,000 per year. If the order is accepted there will be additional training costs of £700.
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In this decision the differential costs for visits by staff are:
A)£0.
B)£100.
C)£200.
D)£300.

Question

Quizplus · Accepted Answer

The differential cost refers to the cost that will change as a result of a decision. The £200 for visits by sales staff has already been incurred, so it is a sunk cost and does not change with the decision to accept the order. Therefore, the differential cost for visits by staff is £0.

A Department Accepts a New Order from a Customer