Chapter 25, Problem E25.9E

To determine

Concept Introduction:

Relevant Cost: Relevant cost are those expected future cost which are necessary to take decision. For example, in a decision relating to replacement of an old machine, the written down value of exisiting machine is not relevant but its sale price is relevant.

Irrelevant Cost: Cost which are nor relevant for decision making are called irrelvant cost. The following cost are considered to be irrelevant :

1. Historical or Sunk Cost

2. Fixed Expenses which remains unchanged across different alternatives.

Sunk Cost: Sunk cost are the historical cost, which is incurred in past. These cost are not relevant in decision making.

To State:

1. Relevant and irrelevant factors to Jacob’s Dilemma

2. Jacob should do