Question

GL Plastics spent $1,200 last week repairing a machine. This week the company is trying to decide if the machine could be better utilized if they assigned it a proposed project. When analyzing the proposed project, the $1,200 should be treated as which type of cost?

Answer 1

Answer:

sunk costs

Explanation:

Sunk costs are costs that have already been spent. Sunk costs cannot be recovered, so they should not be considered as part of the decision process of any new project. New projects should only consider future costs and benefits, not past sunk costs.

Whatever GL Plastics decides to do with the new project, it cannot recover the $1,200 they spent repairing the machine.