Question

1. An employee of Meagan Corporation found some partially completed units of Model X in a dusty corner of the warehouse.  A job ticket attached to the units indicates that a total of P750 in manufacturing costs have been used to bring the materials to this point in the manufacturing process.  The units can be sold in their current condition for P275 to a scrap metal dealer.  If Meagan spends P250 to complete the units, they could be sold for P600. What should Meagan do? Why? Identify the sunk cost, if any.

Answer 1

Meagan should complete the units, as it leads to financial advantage to the meagan corporation

Financial advantage = Sale Price - Further processing costs - revenue for gone by salling it as it is

= 600 - 250 -275

= $ 75

Meagan Corporation should complete the unit and then sale it, as it leads to financial advantage of $75

In the given question, the sunk costs is P 750, as this the manufacturing costs which has already been incurred and does not impact our decision so it is sunk costs