A firm is deciding whether or not to close down its plant and modernize by installing new technology.Which of the following should management ignore when making the decision?
A)How much the present plant cost
B)Cost of lost sales while the plant is closed
C)Added cost of the labor needed for the new plant
D)All of the above

Question

Quizplus · Accepted Answer

The cost of the present plant is a sunk cost and should not be considered in deciding whether or not to modernize. Management should focus on the future costs and benefits of the investment, such as the cost of lost sales and the added cost of labor needed for the new plant.

A Firm Is Deciding Whether or Not to Close Down