Question

An insurance office owns a large building downtown. The sixth floor of this building currently houses its entire Human Resources Department.
After carrying out a survey to see whether the sixth floor could be rented and for what price, the company must decide whether to split the Human Resources Department between currently unoccupied spaces on several floors and rent out the entire sixth floor or to leave things as they currently are.

Which of the following should NOT be considered when deciding whether to rent out the sixth floor?

A) the amount obtained by renting the sixth floor
B) cost involved with a loss of efficiency resulting from the Human Resources Department being split between several spaces
C) the cost of the research into the feasibility of renting the sixth floor
D) the cost of refurbishing the new space to be occupied by the Human Resources Department

Answer 1

Answer:The cost of the research into the feasibility of renting the sixth floor.

Explanation:

This cost will not considered for it's a sunk cost which was useful in helping the company to take a decision but it's not recoverable, the letting or not letting out of the building cannot change, so it should not be consider when deciding whether to rent out the sixth floor.

The price of renting the sixth floor out impacts on the income and so equally is cost in terms of materials in moving the human resources department, refurbishing the new office and efficiency this makes all these relevant in deciding whether to rent out the sixth floor.