Delaney Company is considering replacing equipment which originally cost $600,000 and which has $420,000 accumulated depreciation to date.A new machine will cost $790,000.What is the sunk cost in this situation?
A) $370,000
B) $790,000
C) $180,000
D) $190,000

Question

Quizplus · Accepted Answer

Sunk costs are the costs that have already been incurred and cannot be recovered. In this situation, the original cost of the equipment and the accumulated depreciation are both sunk costs as they have already been incurred and cannot be recovered. Therefore, the sunk cost in this situation is $420,000 (accumulated depreciation). The cost of the new machine, $790,000, is not a sunk cost as it has not yet been incurred.

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