Sala Co.is contemplating the replacement of an old machine with a new one.The following information has been gathered: $\begin{array}{lrr}&\text { Old Machine }&\text { New Machine }\
\text { Price } & \$ 300,000 & \$ 600,000 \
\text { Accumulated Depreciation } & 90,000 & -0- \
\text { Remaining useful life } & 10 \text { years } & -0- \
\text { Useful life } & -0- & 10 \text { years } \
\text { Annual operating costs } & \$ 240,000 & \$ 180,600
\end{array}$ If the old machine is replaced, it can be sold for $24,000. Which of the following amounts is a sunk cost?

Question

Quizplus · Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered. The accumulated depreciation of $90,000 on the old machine is a sunk cost, and since the old machine's original price was $300,000, the book value is $210,000 ($300,000 - $90,000).

Sala Cois Contemplating the Replacement of an Old Machine with a a New