Question

The tingey comp has 500 obsolete microcomputers that are carried in inventory as a total cost of 720,000. If these computers are upgraded at a total cost of 100,000 they can be sold for a total of 160,000. As an alternative, the computer can be sold as it for 50,000. The sunk cost for this situation is:

1) 720,000
2) 160,000
3) 50,000
4) 100,000

Answer 1

The sunk cost for the Tingey Comp's scenario is the $720,000 originally spent to carry the inventory of obsolete microcomputers, as this cost cannot be recovered irrespective of the future actions taken by the company.

Step-by-step explanation:

The sunk cost in this situation refers to the money that has already been spent and cannot be recovered. The $720,000 that has been used to carry the inventory of obsolete microcomputers is a sunk cost because whether the company chooses to upgrade the computers or sell them as is, this money has already been spent and cannot be reclaimed. Therefore, the correct answer to what the sunk cost is for the Tingey Comp in this scenario is $720,000.