Question

Chang Industries has 1,000 defective units of product that already cost $54 each to produce. A salvage company will purchase the defective units as is for $25 each. Chang's production manager reports that the defects can be corrected for $46 per unit, enabling them to be sold at their regular market price of $41. The $54 per unit is a:

Answer 1

The $54 is a sunk cost. It won't vary whether you choose to sell them as it is or to continue processing. A sunk cost is a cost that already took place and has no weight in the decision process.

Step-by-step explanation:

Giving the following information:

Chang Industries has 1,000 defective units of product that already cost $54 each to produce.

The $54 is a sunk cost. It won't vary whether you choose to sell them as it is or to continue processing. A sunk cost is a cost that already took place and has no weight in the decision process.