Question

The company is comparing two different processes. It currently follows Process 1, with revenues of TL 80,000 per year, maintenance expenses of TL 5,000 per year, and operating expenses of TL 38,000 per year. Process 2 provides revenues of TL 80,000 per year, maintenance expenses of TL 12,000 per year, and operating expenses of TL 32,000 per year. Process 1 employs a piece of equipment that was upgraded 2 years ago at a cost of TL 22,000. If Process 2 is chosen, it will free up resources that will increase revenues by TL 3,000. Show any changes in net income from choosing Process 2 over Process 1. Are there any sunk costs or opportunity costs involved in the decision? Explain.

Answer 1