Question

Valley Forge and Metal purchased a truck five years ago for local deliveries. Which one of the following costs related to this truck is the best example of a sunk cost? Assume the truck has a usable life of five years. Multiple Choice New tires that will be purchased this winter Costs of repairs needed so the truck can pass inspection next month Money spent last month repairing a damaged front fender Engine tune-up that is scheduled for this afternoon Cost for a truck driver for the remainder of the truck's useful life

Answer 1

The best example of a sunk cost related to the truck in this scenario would be: Money spent last month repairing a damaged front fender.

What is a sunk cost

Sunk costs are expenses that have already been incurred and cannot be recovered or altered by any future action. In this case, the money spent on repairing the damaged front fender is an expense that has already been paid, and its cost won't change regardless of any future decisions about the truck.

It represents a cost that has already occurred and is not relevant to future decisions about the truck, making it a sunk cost.