A company has experienced a steady decline in the sale of its existing products due to unavoidable competition. It is introducing a new product to stabilize this decline in market share. In the analysis of the strategy for the new product,
A) the lost sales should be treated as a sunk cost and not included in the analysis.
B) the lost sales should be included along with the sales forecast for the new product.
C) the present value of the lost sales should be included in the cashflow analysis.
D) the sales forecast should include either the anticipated revenue from the new product or the present value of the lost sales, whichever is greater.

Question

Quizplus · Accepted Answer

The lost sales should be considered a sunk cost, meaning that they are costs that have already been incurred and cannot be recovered. Including the lost sales in the analysis of the strategy for the new product would not be useful since they are a cost that cannot be changed. Therefore, the best choice is to treat the lost sales as a sunk cost and not include them in the analysis.

A Company Has Experienced a Steady Decline in the Sale