Chapter 16, Problem 16.8E

To determine

Concept Introduction:

Relevant costs are the costs that are relevant for any decision making. Relevant costs are helpful for take managerial decisions like make or buy, accept or reject new offers, sell or further process etc.

Two basic types of the relevant costs are as follows:

1. Out-of-pocket costs
2. Opportunity costs

Sunk Costs are cost incurred in past which are irrelevant for the decision making. In the case of sell or process further decisions, the cost already incurred to manufacture the original product is a sunk cost and hence irrelevant for the decision making.

To Indicate:

The example for each type of costs given