A company is considering a new project that will cost $19,000. This project would result in additional annual revenues of $6,000 for the next 5 years. The $19,000 cost is an example of a(n):
A) Sunk cost.
B) Fixed cost.
C) Incremental cost.
D) Uncontrollable cost.
E) Opportunity cost.

Question

Quizplus · Accepted Answer

The $19,000 cost for the new project is an incremental cost, which represents the additional cost incurred as a result of undertaking the project. It is not a sunk cost, as it has not already been incurred and cannot be recovered. It is also not a fixed cost, as it varies according to the level of production or investment. The cost is controllable by the company, as it is within their discretion to decide whether or not to undertake the project. Lastly, it is not an opportunity cost, as that represents the cost of forgoing the next best alternative.

A Company Is Considering a New Project That Will Cost