Question

Suppose you are a manager of a factory. You purchase four (4) new machines at one million dollars each. If you can resell two of the machines at $500,000 each and the other two machines at $200,000 each, what are the sunk costs of purchasing the machines

Answer 1

$2,600,000

Step-by-step explanation:

Sunk cost refers to the costs that cannot be recovered by the businesses.

Sunk costs:

= Cost incurred - Cost recoverable

= (4 × $1,000,000) - [(2 × $500,000) + (2 × $200,000)]

= $4,000,000 - ($1,000,000 + $400,000)

= $4,000,000 - $1,400,000

= $2,600,000

Therefore, the sunk costs of purchasing the machines is $2,600,000.