Buckner Company is considering replacing a machine that is presently used in the production of its product. The following data are available:
-Which of the data provided in the table is a sunk cost?
A) The disposal value of the old machine
B) The original cost of the old machine
C) The annual cash operating costs of the old machine
D) The annual cash operating costs of the replacement machine

Question

Buckner Company is considering replacing a machine that is presently used in the production of its product. The following data are available: 
-Which of the data provided in the table is a sunk cost?
A) The disposal value of the old machine 
B) The original cost of the old machine 
C) The annual cash operating costs of the old machine 
D) The annual cash operating costs of the replacement machine

Quizplus · Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered. The original cost of the old machine is a sunk cost because it was incurred in the past and cannot be recovered regardless of whether the company replaces the machine or not. The disposal value of the old machine is not a sunk cost because it has not been incurred yet and can be recovered if the company decides to dispose of the old machine. The annual cash operating costs of both the old and the replacement machine are future costs and are not considered sunk costs.

Buckner Company Is Considering Replacing a Machine That Is Presently