Question

Global Enterprises has spent $134,000 on research developing a new type of shoe. For this shoe to now be manufactured, the firm will need to expand into an empty building that it currently owns the firm was offered $229,000 last week for that building an additional $342.000 will be required for new equipment and building improvements. Labor and material costs are estimated at $4.98 per pair of shoes. Interest expense on the loan needed to finance the production of this new shoe will be $17, 800 a year. Which one of these correctly identifies the sunk costs? A. $229,000 value of the building B. $134,000 for research C. $229,000 value of the building plus $342,000 for new equipment and improvements D. $17, 800 for interest plus $134,000 for research E. $229,000 for the building plus $134,000 for research

Answer 1

Which one of these correctly identifies the sunk costs?

• B. $134,000 for research

Step-by-step explanation:

Sunk costs are costs that have already been spent and cannot be recovered by the company. In this case, only the research and development costs can be considered a sunk cost. The land has a market value and if the company decides to sell it, they would get paid for it. Additional investments or costs have not been incurred yet, so they are only planned or estimated costs.