Question

Weston Steel purchased a new coal furnace six years ago at a cost of $2.2 million. Last year, the government changed the emission requirements and this furnace cannot meet those standards. Thus, the company can no longer use the furnace, nor has it been able to locate anyone willing to purchase the furnace. Given the current situation, the furnace is best described as which type of cost?

1) Erosion
2) Book
3) Sunk
4) Market
5) Opportunity

Answer 1

The furnace is best described as a sunk cost because it has already been purchased and cannot be recovered.

Step-by-step explanation:

The furnace is best described as a sunk cost. A sunk cost is a cost that has already been incurred and cannot be recovered. In this case, Weston Steel purchased the furnace six years ago for $2.2 million, but now it cannot be used or sold due to changes in emission requirements.