4. Carl is the lead engineer on a smart HVAC cooling system that works with minimal energy and is voice activated. Given the revolutionary nature of the system, it took many failed tries to create a system that actually worked, a cost of $30,000. Now each unit sells for $6500 and it costs $5000 in raw materials and labor to produce. What costs should Carl take into consideration when deciding to service the order for an additional unit

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Business

Rohan Davies

12 September, 00:20

4. Carl is the lead engineer on a smart HVAC cooling system that works with minimal energy and is voice activated. Given the revolutionary nature of the system, it took many failed tries to create a system that actually worked, a cost of $30,000. Now each unit sells for $6500 and it costs $5000 in raw materials and labor to produce. What costs should Carl take into consideration when deciding to service the order for an additional unit

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Cullen Riley · Answer 1

The relevant cost is $5000 of raw materials and labor.

Explanation:

Giving the following information:

Given the revolutionary nature of the system, it took many failed tries to create a system that worked, a cost of $30,000.

Now each unit sells for $6500 and it costs $5000 in raw materials and labor to produce.

The $30,000 is a sunk cost. It is a cost that takes place in the past and nothing that the company does will change it. In this regard, it should not be taken into consideration for futures decisions.

The relevant cost is $5000 of raw materials and labor.