A firm decides to purchase a computer for $1,500 at the beginning of the month. The computer will be used for administrative purposes that do not vary with the volume of product that the firm makes. The computer has no re-sale value. This is a fixed cost. At the end of the month, this cost is sunk.

Question

Quizplus · Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered, regardless of future decisions. Once the firm purchases the computer, the cost of $1,500 is considered sunk and cannot be recovered. Therefore, it is a fixed cost that does not vary with the volume of product and is sunk at the end of the month. A sunk cost is a cost that has already been incurred and cannot be recovered. Since the computer has no resale value and has already been purchased, it is considered a sunk cost at the end of the month.

A Firm Decides to Purchase a Computer for $1,500 at the Beginning