Which of the following is not considered a relevant concern in determining incremental cash flows for...

Which of the following is not considered a relevant concern in determining incremental cash flows for a new product?

[CH-10]

	a.	The final disposal of a product, including any tax effects related to the sale of the product.
	b.	Revenues from the existing product that would be lost as a result of some customers switching to the new product.
	c.	Shipping and installation costs associated with preparing the machine to be used to produce the new product.
	d.	The cost of a product analysis completed in the previous tax year and specific to the new product.
	e.	None of the above (All are relevant concerns in estimating relevant cash flows attributable to a new product project.)

Solutions

Expert Solution

Cash flows that change with the course of action are incremental cash flows, below are incremental cash flows:

	a.	The final disposal of a product, including any tax effects related to the sale of the product.
	b.	Revenues from the existing product that would be lost as a result of some customers switching to the new product.
	c.	Shipping and installation costs associated with preparing the machine to be used to produce the new product.

Costs that do not chage with course of action are not relevant, below is such cost:

The cost of a product analysis completed in the previous tax year and specific to the new product.

It does not change by taking any new action. It is not relevant in decision making. It is also called sunk cost.

Answer is:

d.	The cost of a product analysis completed in the previous tax year and specific to the new product.

Please rate.

jeff jeffy answered 1 year ago

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