Question

If the old machine is replaced, it can be sold for $32800. Which of the following amounts is a sunk cost? $246000 $820000 $287000 $328000

Answer 1

Answer: $287,000

Step-by-step explanation:

Sunk costs are costs that have already been incurred and so should make no impact on the decision to be made. In the case of fixed assets to be replaced, the Sunk cost would be the Book value of the Asset.

Sunk Cost of Old Machine = Book Value of old machine

Sunk Cost of Old Machine = Cost Price - Accumulated Depreciation

Sunk Cost of Old Machine = 410,000 - 123,000

Sunk Cost of Old Machine = $287,000