Question

Last year, you estimated you would earn $5 million in sales revenues from developing a new product. So far, you have spent $3 million developing the product, but it is not yet complete. Meanwhile, this year you have new sales projections that show expected revenues from the new product will actually be only $4 million.How much should you be willing to spend to complete the product development?a. $0.b. Up to $4 million.c. Whatever it takes.d. Up to $1 million.

Answer 1

Answer:

The answer is b. Up to $4 million.

Explanation:

It is critical to recognize that $3 million already spent on developing the product is the sunk cost, which is irrelevant cost that should not be included in the budget further spend for the new product.

As the new product is expected to generate a revenues of $4 million, the further cost should be spent on the new product development should not be exceeded the $4 million.

Thus, the answer is b. Up to $4 million is the correct choice.