Which of the following is an irrelevant cost when making a future business decision?

• A. Incremental cost
• B. Sunk cost
• C. Variable cost
• D. Opportunity cost

Answer: (B)

Verified step by step guidance

1. Understand the concept of relevant and irrelevant costs: Relevant costs are those that will influence a future business decision, while irrelevant costs are those that do not affect the decision-making process.
2. Define sunk cost: A sunk cost is a cost that has already been incurred and cannot be recovered. Since it cannot be changed or influenced by future decisions, it is considered irrelevant for decision-making.
3. Compare sunk cost with other costs listed: Incremental costs, variable costs, and opportunity costs are all relevant costs because they can change depending on the decision being made. Sunk costs, however, remain fixed and are not influenced by future actions.
4. Focus on the decision-making process: When evaluating costs for a future business decision, exclude sunk costs from the analysis as they do not provide any actionable insight or impact on the outcome.
5. Conclude that sunk costs are irrelevant: Based on the definitions and characteristics of the costs provided, sunk costs are the correct answer to the question as they are irrelevant in making future business decisions.