Asked by Nazmi Olcar on May 07, 2024
Verified
Delaney Company is considering replacing equipment that originally cost $600,000 and has accumulated depreciation of $420,000 to date. A new machine will cost $790,000. The sunk cost in this situation is
A) $370,000
B) $790,000
C) $180,000
D) $190,000
Sunk Cost
A cost that has already been incurred and cannot be recovered, which should not influence future business decisions.
Accumulated Depreciation
The total depreciation expense allocated for a tangible asset over its usage period, reducing its book value.
Replacement Equipment
Items purchased to replace older assets within a business, ensuring operational efficiency and continuity.
- Compute and elucidate the differential cost and revenue for making decisions.
Verified Answer
SS
Salwa ShmouelMay 10, 2024
Final Answer :
C
Explanation :
Sunk costs are costs that have already been incurred and cannot be recovered. In this case, the original cost of the equipment ($600,000) minus the accumulated depreciation ($420,000) equals $180,000, which is the book value of the old equipment and represents the sunk cost.
Learning Objectives
- Compute and elucidate the differential cost and revenue for making decisions.