Answer the following questions using the information below:
Flowers For Everyone is considering replacing its existing delivery van with a new one.The new van can offer considerable savings in operating costs.Information about the existing van and the new van follow:
$$\begin{array} { l r r }
& \text { Existing van } & \text { New van } \
\text { Original cost } & \$ 100000 & \$ 180000 \
\text { Antual operating cost } & \$ 33000 & \$ 20000 \
\text { Accumulated depreciation } & \$ 60000 & - \
\text { Current salvage value of the existing van } & \$ 45000 & - \
\text { Remaining life } & 10 \text { years } & 10 \text { years } \
\text { Salvage value in 10 years } & \$ 0 & \$ 0 \
\text { Antual depreciation } & \$ 4000 & \$ 18000
\end{array}$$
-'Sunk costs' include:
A)the original cost of the existing van.
B)the annual operating cost of the new van.
C)the original cost of the new van.
D)the current salvage value of the existing van.

Question

Answer the following questions using the information below:
Flowers For Everyone is considering replacing its existing delivery van with a new one.The new van can offer considerable savings in operating costs.Information about the existing van and the new van follow:
 $$\begin{array} { l r r } 
& \text { Existing van } & \text { New van } \
\text { Original cost } & \$ 100000 & \$ 180000 \
\text { Antual operating cost } & \$ 33000 & \$ 20000 \
\text { Accumulated depreciation } & \$ 60000 & - \
\text { Current salvage value of the existing van } & \$ 45000 & - \
\text { Remaining life } & 10 \text { years } & 10 \text { years } \
\text { Salvage value in 10 years } & \$ 0 & \$ 0 \
\text { Antual depreciation } & \$ 4000 & \$ 18000
\end{array}$$
-'Sunk costs' include:
A)the original cost of the existing van.
B)the annual operating cost of the new van.
C)the original cost of the new van.
D)the current salvage value of the existing van.

Quizplus · Accepted Answer

Sunk costs refer to costs that have already been incurred and cannot be recovered. The original cost of the existing van is a sunk cost and cannot be recovered. The decision to replace the van should be based only on the potential savings from operating costs of the new van. The annual operating cost of the new van (B) and the original cost of the new van (C) are not sunk costs, as they are potential future costs that can be avoided by not purchasing the new van. The current salvage value of the existing van (D) is also not a sunk cost, as it represents a potential future source of income if the existing van is sold.

Answer the Following Questions Using the Information Below: Flowers for Everyone

Answer the Following Questions Using the Information Below:
Flowers for Everyone