Relevant costs marginal costing, and short-term decision making
. You own a small workshop which cost you £100,000 five years ago. You also own several small printing machines which cost £50,000 two years ago, on which you are charging £10,000 depreciation per annum. Business rates on the small workshop total £15,000 per annum. You have been approached by a new customer with a specific job which will require the investment of £20,000 in new machinery along with the employment of two new workers at a cost of £25,000 each per annum. This new customer has approached you as a result of an internet advertising campaign over the last month which cost £2,500. You are now trying to decide whether to take on this new customer's order which will generate sales of £100,000 this year with the potential to generate further sales in the future.
Which of these costs represent relevant costs and which costs represent sunk costs?
When you have considered how you would answer the question select Yes to view the correct answer.

. The university is considering introducing a new practical course in chemical engineering. Three members of staff whose combined salaries total £100,000 would be transferred to this new course but a further three new members of staff would be required and the university would have to offer salaries of £40,000 per annum to each of the successful applicants to attract the required level of experience and expertise. Laboratory technicians currently employed by the university and paid a combined total of £75,000 would be able to manage the new course as well as their existing courses. A new extension to the existing chemistry building would have to be built at a cost of £500,000 and would be used to house students on the new chemical engineering course. Additional staff training would cost £20,000 to bring all members of the course team up to the required levels of expertise. A feasibility study of the new course was commissioned and cost £7,500. On the basis of the recommendations in this report, the university's board of governors are debating whether to go ahead with the new course. The university anticipates that the course would recruit 30 home students and 20 overseas students each year, generating total course fees per annum of £450,000. However, bursaries and fee waivers would cost about £50,000 per annum.
Which of these costs represent relevant costs and which costs represent sunk costs?
When you have considered how you would answer the question select Yes to view the correct answer.