2. XYZ Corp. hired a consultant to do a cost-benefit analysis whether they should invest in...
2. XYZ Corp. hired a consultant to do a cost-benefit analysis whether they should invest in a new project – “Project X.” They spent $250,000 consulting fee. Do you think the consulting fee is a relevant cost in the decision making process of undertaking that project? Why or why not?
Homework Answers
Consultancy expenses is not a relevant cost in the decision making,
Consultancy fees for analysis to do a cost -benefit analysis is an expenses which can incurred even project accept or not. So this is a fixed cost which can incurred in both the situation. So this is a sunk cost for the " Project X " and not relevant for decision making.
Cost which are not affect in both the condition, whether to accept the project or not accept the project are not relevant for any project decision making.
So as per above, consultancy charges of $ 250,000 is a expenses which can incurred even project is accepted or not and therefore it is not relevant cost for decision making.
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