when you see a clause seperated by commas, start by seeing if you can "read around" it. In this case, take out that clause and you're left with:

During the first nine months of 1979, textbook publishers incurred substantial costs for creating products that never were sold.

That's right: the products were never sold.

By contrast, look at the sentence with your choice, (D), inserted:

During the first nine months of 1979, textbook publishers incurred substantial costs for creating products that, due to a decline in public funding for instructional material, the products were never sold.

Then take out that clause:

During the first nine months of 1979, textbook publishers incurred substantial costs for creating products that the products were never sold.

"products that the products"? that can't be right.

Learn to recognize those removable clauses, and be sure to check that the sentence reads correctly around them.