Question

Breezy Company is considering the replacement of equipment that has a current book value of $340,000. Breezy has an oppprtunity to sell the equipment for $240,000. The cost of replacing the old equipment with a new machine is $300,000. The cost of operating the new equipment is $20,000 per year less than the cost of operating the old equipment. The new equipment has a 5-year useful life. The amount of the sunk cost for this replacement decision is

Answer 1

$340,000

Step-by-step explanation:

A sunk cost is a cost that has already been incurred and cannot be affected by any decision that someone makes. E.g. once you pay an expense like rent, the cost will not be recovered or altered by any decision that you make. Sunk costs is simply money that has been spent and cannot be recovered.