Answer (B) is correct . Before they are incurred, R&D costs are often considered to be discretionary. However, Huron’s R&D costs have already been incurred. Thus, they are sunk costs. A sunk cost is a past cost or a cost that the entity has irrevocably committed to incur. Because it is unavoidable, it is not relevant to future decisions.
Answer (A) is incorrect because Conversion costs are composed of direct labor and factory overhead, that is, costs incurred to convert materials into a finished product.
Answer (C) is incorrect because Relevant costs are expected future costs that vary with the action taken. A cost that has already been incurred is not relevant to future decisions.
Answer (D) is incorrect because Avoidable costs may be eliminated by not engaging in an activity or by performing it more efficiently.
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Research and development costs for Huron’s two new products are
