Summer Days Corporation purchased manufacturing equipment two years ago for $180 000. The firm is considering selling the equipment outright for $140 000 or, alternatively, trading it in on new equipment for a trade-in allowance of $120 000. The sunk cost associated with the manufacturing equipment is:

Question

Quizplus · Accepted Answer

The sunk cost associated with the manufacturing equipment is the initial cost of $180,000 that was paid for it two years ago. This cost has already been incurred and cannot be recovered. Therefore, both the selling price and the trade-in allowance are irrelevant to the sunk cost. The best choice depends on other factors such as the cost and benefits of the new equipment, the salvage value of the old equipment, and the tax implications of selling versus trading in. Without this information, it is impossible to determine the best choice.

Summer Days Corporation Purchased Manufacturing Equipment Two Years Ago for $180