Question

Which of the following is an irrelevant cost in Capital Budgeting Decisions?

• A. Sunk Cost
• B. Opportunity Cost
• C. Allocated Overheads
• D. Both A and C

Answer 1

Answer: (D)

Both A and C

Sunk costs are the costs which were incurred in the past. Sunk costs are irrelevant for decisions, because they cannot be changed.

Opportunity Cost is the income foregone by selecting one alternative over another. These are considered as relevant costs for decision making.

Allocation of overheads means charging a cost center with such overheads which can be identified and measured. Such allocated overheads are irrelevant as already charged to cost center.