(Relevant costs) Because of a monumental error committed by its purchasing department, JC’s Grocery ordered 50,000 heads of lettuce rather than the 500 that should have been ordered. The company paid $0.60 per head for the lettuce. Although management is confident that it can sell 5,000 units through regular sales, the market is not large enough to absorb the other 45,000 heads. Management has identified two ways to dispose of the excess heads. First, a wholesaler has offered to purchase them for $0.35 each. Sec¬ ond, a restaurant chain has offered to purchase the heads if JC’s will agree to convert them into packaged lettuce for salads. This option would require JC’s to incur $10,000 for conversion and the heads could then be sold for the equivalent of $0.48 each.

a. Which costs are sunk in this decision?

b. Actually, JC’s can consider three alternatives. Describe the alternative that is not mentioned in the problem.

c. What are the relevant costs of each decision alternative, and what should the company do?

LO.1