Question

Tahoe Enterprises has some obsolete inventory that originally cost $10,000. The inventory can be sold for scrap for $4,000 or modified at an additional cost of $12,000 and then sold for $18,000. Tahoe's sunk costs are:

• $10,000

• $14,000

• $4,000

• $22,000

Answer 1

Sunk costs are the costs which are already incurred and its lost permanently.i.e it is not recoverable.

A decision on whether or not a modification is made it will have no effect on this cash flow, so sunk costs cannot be relevant.

Here in the given case, the inventory has a cost incurred in original is $10000, which is the cost already incurred.

Now takeing new possibility of selling it at $4000 or incurring additional cost and selling at another price is the another decision part which is to be made

This will not alter the cost which has already being incurred,

Thus in the given case sunk cost is $10000.

The correct option is ------A