Financial & Managerial Accounting 17th Edition by Jan Williams ,Susan Haka,Mark Bettner,Joseph Carcello

Exercise 28

Vickery Machining Company is nearly finished constructing a specially designed piece of machining equipment when the customer declares bankruptcy and cannot pay for the equipment. Vickery estimates that the cost associated with making the uncompleted equipment was $1,693,000. Since the machining equipment was specially designed for the customer, there are no other buyers for the equipment unless it is rebuilt. The cost to rebuild is $450,000, after which the product can be sold for $500,000, or the equipment can be scrapped for $30,000. Identify each of the costs in this scenario as sunk, out-of-pocket, or incremental. What should Vickery do?