Makwa Industries has developed two new products but has only enough plant capacity to introduce one product during the current year.The following data will assist management in deciding which product should be selected.Makwa's fixed overhead includes rent and utilities,equipment depreciation,and supervisory salaries.Selling and administrative expenses are not allocated to individual products. Research and development costs for Makwa's two new products are
A)Prime costs.
B)Conversion costs.
C)Opportunity costs.
D)Sunk costs.

Question

Makwa Industries has developed two new products but has only enough plant capacity to introduce one product during the current year.The following data will assist management in deciding which product should be selected.Makwa's fixed overhead includes rent and utilities,equipment depreciation,and supervisory salaries.Selling and administrative expenses are not allocated to individual products.  Research and development costs for Makwa's two new products are
A)Prime costs. 
B)Conversion costs. 
C)Opportunity costs. 
D)Sunk costs.

Quizplus · Accepted Answer

Research and development costs are considered sunk costs, as they cannot be recovered regardless of which product is chosen. Therefore, these costs should not be considered in the decision of which product to introduce. Instead, management should focus on the potential revenue and costs associated with each product to determine the best choice.

Makwa Industries Has Developed Two New Products but Has Only