The owner of Mom & Pop's Hardware Store purchased a knife sharpener last year in order to allow the store to offer services in sharpening all types of blades.The cost of the equipment was $5,200 but Pop now feels that the store needs to generate additional revenue of $200 per month in order to have made the purchase worthwhile.With regard to making the decision of whether to continue to offer the service, the original cost of the sharpener can be considered:

Question

Quizplus · Accepted Answer

The cost of the sharpener is considered a sunk cost since it has already been incurred and cannot be recovered. It is not relevant in the decision to continue offering the service, as the important factor is whether the additional revenue of $200 per month justifies the ongoing expenses and effort required to offer the service.

The Owner of Mom & Pop's Hardware Store Purchased a Knife