Pelmette and Oxbow Limited is appraising a potential new product which will involve the purchase of new production machinery.The company has just paid for a market research survey to gauge likely public interest in the project. Which one of the following statements is correct?
For capital investment appraisal purposes the expenditure on the market research survey is classified as a:

Question

Quizplus · Accepted Answer

The expenditure on market research survey is considered a sunk cost, which means that it has already been incurred and cannot be recovered. It is not a standard cost or a fixed cost, and it is not a capital cost as it is not directly related to the purchase of production machinery. Sunk costs are not considered in capital investment appraisal as they are irrelevant to the decision-making process.

Pelmette and Oxbow Limited Is Appraising a Potential New Product