Question

Which one of these statements is correct? Multiple Choice All allocated costs should be included in the initial cost of a project. Sunk costs should be included in the initial cost of a project. Synergy occurs when a new product reduces the sales of a current product. Costs incurred prior to deciding whether or not to produce a new product are sunk costs.

Answer 1

Answer:

Option D Costs incurred prior to deciding whether or not to produce a new product are sunk costs.

Explanation:

Option A The allocated costs might include fixed costs and are not relevant, so must not be included in the project appraisal.

Option B Sunk costs are not relevants costs and must not be included in the cost of the project. So this statement is also incorrect.

Option C Synergy occurs due to increase in the revenue and decrease in costs due to parenting strategy of the parent company.

The reason is that it is the definition of the sunk cost and is correctly stated in the option D. So the option D is correct here.