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

Question

Quizplus · Accepted Answer

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.

Delaney Company Is Considering Replacing Equipment That Originally Cost $600,000