Question

Oregon Company is considering replacing an old machine that originally cost $95,000. A new machine will cost $900,000, and the old machine can be sold for $25,000. What is the sunk cost in this situation

Answer 1

Answer:

$ 970,000 are sunk costs.

Explanation:

An old machine     cost $95,000

A new machine cost $900,000,

Old machine can be sold for $25,000

The sunk cost in this situation= $ 900,000 + $ 90,000- $ 25,000= $ 995,000- $ 25,000= $ 970,000

Sunk Cost is the amount that cannot be recovered . In this situation only $ 25,000 can be recovered and $ 970,000 cannot be replaced . This amount will be treated as sunk costs.

The sunk costs are costs that are spent and are irrecoverable .