Management of Sourwine Corporation is considering whether to purchase a new model 320 machine costing $389,000 or a new model 280 machine costing $318,000 to replace a machine that was purchased 6 years ago for $376,000. The old machine was used to make product C78P until it broke down last week. Unfortunately, the old machine cannot be repaired.
Management has decided to buy the new model 280 machine. It has less capacity than the new model 320 machine, but its capacity is sufficient to continue making product C78P.
Management also considered, but rejected, the alternative of simply dropping product C78P. If that were done, instead of investing $318,000 in the new machine, the money could be invested in a project that would return a total of $405,000.
-In making the decision to buy the model 280 machine rather than the model 320 machine, the sunk cost was:
A) $376,000
B) $318,000
C) $405,000
D) $389,000

Question

Quizplus · Accepted Answer

The sunk cost is the original cost of the old machine, $376,000, which has already been incurred and cannot be recovered.

Management of Sourwine Corporation Is Considering Whether to Purchase a New