Question

Chang Industries has 2,000 defective units of product that already cost $14 each to produce. A salvage company will purchase the defective units as is for $5 each. Chang's production manager reports that the defects can be corrected for $6 per unit, enabling them to be sold at their regular market price of $21. The $14 per unit is a: Multiple Choice Sunk cost. Period cost. Out-of-pocket cost. Opportunity cost. Incremental cost.

Answer 1

A sunk cost is the correct answer to this question.

Explanation:

Sunk cost:- Sunk costs are those expenses that have been accumulated in the past and are thus in some way unrelated to judgment-making.

In the question referred to above, the company has already made $14 to produce. This cost will be inconsequential even if the company makes the units as it is or procedures them further.

As a result, $14 is a sunk expense.

Other options are incorrect because they are not related to the given scenario.