Woodfull Corporation bought an empty warehouse building two years ago for $300,000.Management is currently evaluating a project to convert the building into a cricket bat manufacturing plant.Alternatively,the building could be leased for $100,000 per annum.If the evaluation,the cost of the building should be treated as a(n) ______________ and the lease rental as a(n) ___________.

Question

Quizplus · Accepted Answer

The cost of the building is a sunk cost because it is a past cost that cannot be recovered, and the lease rental is an opportunity cost because it represents the income foregone by not leasing the building out.

Woodfull Corporation Bought an Empty Warehouse Building Two Years Ago