Question

Valley Forge and Metal purchased a truck five years ago for local deliveries. Which one of the following costs related to this truck is the best example of a sunk cost? Assume the truck has a usable life of five years. a. New tires that will be purchased this winter.b. Costs of repairs needed so the truck can pass inspection next month.c. Money spent last month repairing a damaged front fender.d. Engine tune-up that is scheduled for this afternoon.e. Cost for a truck driver for the remainder of the truck's useful life.

Answer 1

Answer: Option (c) is correct.

Explanation:

Correct option(c): Money spent last month repairing a damaged front fender.

This is the best example of sunk cost.

Sunk costs refers to the cost that is incurred in the past and this cost cannot be recovered. This demonstrate that sunk costs should not be included in the decision making of any future projects, and this is due to the cost that cannot vary whether the project has been undertaken or not.

All the other options in the question representing the future costs.