When evaluating special offer decisions, which of the following should management consider?

• A. Relevant costs and revenues associated with the special offer
• B. The impact on regular sales and existing customers
• C. Sunk costs that have already been incurred
• D. Historical costs of inventory

Answer: (B)

Verified step by step guidance

1. Understand the concept of relevant costs and revenues: Relevant costs are future costs that will be directly affected by the decision at hand. Similarly, relevant revenues are future revenues that will change as a result of the decision. These are the primary factors to consider when evaluating a special offer.
2. Evaluate the impact on regular sales and existing customers: Management should assess whether the special offer will cannibalize regular sales or negatively affect relationships with existing customers. This includes analyzing customer loyalty and potential long-term effects on the business.
3. Exclude sunk costs: Sunk costs are costs that have already been incurred and cannot be recovered. These costs should not influence the decision-making process as they are irrelevant to future outcomes.
4. Exclude historical costs of inventory: Historical costs represent past expenditures and are not relevant to the decision about the special offer. Instead, focus on the current and future costs associated with the inventory.
5. Perform a cost-benefit analysis: Combine the relevant costs and revenues, along with the potential impact on regular sales and customers, to determine whether the special offer is financially beneficial for the company.