(Relevant costs) Prior to the 1996 NBA finals, a Houston area clothes retailer purchased 25,000 T-shirts that read: Houston Rockets—Three-Peaters. The company paid, on average, $12.50 for each of these custom T-shirts. Whh Hous¬ ton losing early in the playoffs, the department store is now stuck with 15,000 of the T-shirts. The first 10,000 T-shirts were sold during the playoffs at an average price of $21. The company has learned from one of its suppliers that each shirt could be reworked at a cost of $4 per shirt (which involves removing the words “Three-Peaters” from each shirt). The company could then sell each shirt for $10. Alternatively, the company can sell the shirts for $3 each to a clothes wholesaler.

a. WTiich costs are sunk in this decision?

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

LO1