Asked by Praveeni Sooriyamudali on May 30, 2024
Verified
Mark is an engineer who has designed a telecommunications device. He is convinced that there is a big potential market for the device. Accordingly, he has decided to quit his present job and start a company to manufacture and market the device.Mark purchased a machine two years ago to make experimental boards. The machine will be used to manufacture the new board. The cost of this machine is:
A) an opportunity cost
B) a sunk cost
C) a differential cost
D) a period cost
Sunk Cost
Expenses that are already spent and cannot be retrieved or changed by any future activities.
Opportunity Cost
The foregone benefit that would have been derived by choosing an alternative option.
Differential Cost
A future cost that differs between any two alternatives.
- Identify and distinguish between various types of costs such as sunk costs, period costs, product costs, and opportunity costs.
Verified Answer
MA
MUHAMMAD ABRAR BHATJun 06, 2024
Final Answer :
B
Explanation :
The machine's cost is a sunk cost because it was purchased two years ago and regardless of whether or not Mark starts his new company, the money spent on the machine cannot be recovered. Sunk costs are irrelevant in decision making as they are already incurred and cannot be changed.
Learning Objectives
- Identify and distinguish between various types of costs such as sunk costs, period costs, product costs, and opportunity costs.
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