Delaney Company is considering replacing equipment that originally cost $600,000 and that has $420,000 accumulated depreciation to date. A new machine will cost $790,000, and the old equipment can be sold for $8,000. What is the sunk cost in this situation?

Question

Quizplus · Accepted Answer

The sunk cost in this situation is the accumulated depreciation of the old equipment, which is not recovered regardless of whether the company replaces the equipment or not. The sunk cost is $420,000. The cost of the new equipment and the proceeds from the sale of the old equipment are relevant costs to be considered in the decision to replace the equipment. Therefore, the best choice is B.

Delaney Company Is Considering Replacing Equipment That Originally Cost $600,000