Question

Delaney Company is considering replacing equipment that originally cost $600,000 and that has $420,000 accumulated depreciation to date. A new machine will cost $790,000. What is the sunk cost in this situation

Answer 1

Answer:

$180,000

Explanation:

A sunk cost refers to the cost that is incurred by the businesses but this cost cannot be recovered by the businesses.

Here, given that

Cost of equipment = $600,000

Accumulated depreciation = $420,000

Cost of new machine = $790,000

In this situation, the sunk cost is determined by subtracting the cost that are related to previous year from the cost of the equipment.

Sunk cost =  Cost of equipment - Accumulated depreciation

                 = $600,000 - $420,000

                 = $180,000