Question

Delaney Company is considering replacing equipment that originally cost $489,000 and that has $342,300 accumulated depreciation...

Delaney Company is considering replacing equipment that originally cost $489,000 and that has $342,300 accumulated depreciation to date. A new machine will cost $765,000. What is the sunk cost in this situation?

a.$489,000

b.$618,300

c.$117,360

d.$146,700

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Answer #1

Sunk Cost: Sunk Cost is a cost which is already incurred and that cannot be useful to make any decision. In the given case Delaney Company is considering replacing the old equipment purchased for $ 489,000.

A new machine will cost $ 765,000 and this is be incurred in future so this is not a sunk cost.

Earlier purchased of equipment for $ 489,000 and accumulated depreciation is also irrelevant for decision making for purchase of new machine.

It means purchase value of $ 489,000 is sunk cost in the given case.

Answer = Option a= $ 489,000

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