Overland 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 annual cash operating costs of the old machine
B) The annual cash operating costs of the replacement machine
C) The disposal value of the old machine
D) The original cost of the old machine

Question

Overland 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 annual cash operating costs of the old machine 
B) The annual cash operating costs of the replacement machine 
C) The disposal value of the old machine 
D) The original cost of the old machine

Quizplus · Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered regardless of the decision taken in the future. The original cost of the old machine is a sunk cost as it has already been paid for and cannot be recovered. The other options are not sunk costs as they are future costs that are dependent on the decision taken regarding the replacement of the machine.

Overland Company Is Considering Replacing a Machine That Is Presently