Which of the Following Statements Demonstrates an Understanding of the Importance

question 26

Multiple Choice

Which of the following statements demonstrates an understanding of the importance of sunk costs for decision making? I. "Even though I hate my MBA classes, I can't quit because I've spent so much money on tuition."
II) "To break into the market for soap our firm needs to spend $10M on creating an image that is unique to our new product. When deciding whether to develop the new soap, we need to take this marketing cost into account."

• A) I only
• B) II only
• C) Both I and II
• D) Neither I nor II

---

Definitions:

Capacity Percentage

A measure of the extent to which a company or a production facility is using its total available capacity.

Budgeted Overhead

An estimate of the indirect costs or overheads that a business expects to incur during a specific period.

Direct Labor Hour

The actual time spent by workers directly producing a product or providing a service.

Actual Overhead

The actual amount of indirect costs associated with production, including utilities, maintenance, and factory overhead, incurred during a specific period.