Avoidable fixed costs are relevant to the decision, but sunk costs are not.
This answer includes joint manufacturing costs, which are sunk costs and are not relevant to the decision of whether to upgrade the product or not.
This answer does not include all of the items that are relevant to the decision whether to upgrade the product or not.
When reviewing the data in order to make a decision whether to upgrade or not, only relevant, or incremental revenues and costs are considered. Relevant revenues and costs are those that will be different between or among the various alternatives being considered. 1. The selling price per pound of X-547 is relevant because the selling price will be different if the company decides to upgrade the product to Xylene. 2. Variable manufacturing costs of the upgrade process are relevant, because they will be different if the company decides to upgrade the product. 3. Avoidable fixed costs of the upgrade process are relevant, because they will be different if the company decides to upgrade the product. 4. Selling price per pound of Xylene is relevant, because the sellling price will be different if the company decides to upgrade the X-547 to Xylene. Thus, relevant (incremental) items include 1, 2, 3 and 4. Joint manufacturing costs are sunk costs, so they are not relevant to the decision.
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