Which of the following constitutes an example of a cost which is not incremental,and therefore not relevant in an accept/reject decision?
A) A firm has a parcel of land that can be used for a new plant site or,alternatively,can be used to grow watermelons.
B) A firm can produce a new cleaning product that will generate new sales,but some of the new sales will be from customers who switch from another product the company currently produces.
C) A firm orders and receives a piece of new equipment which is shipped across the country and requires $25,000 in installation and set-up costs.
D) All of the above are not examples of incremental cash flows.
E) Answers a,b,and c are examples of incremental,and therefore relevant,cash flows.

Question

Quizplus · Accepted Answer

Incremental costs are those that change as a result of a new decision. A) involves an opportunity cost, B) involves cannibalization cost, and C) involves a sunk cost that is still incremental as it's necessary for the operation of the new equipment.

Which of the Following Constitutes an Example of a Cost