Sala Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: If the old machine is replaced, it can be sold for $20,000.
Which of the following amounts is a sunk cost?
A) $200,000
B) $150,500
C) $500,000
D) $175,000

Question

Sala Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered:  If the old machine is replaced, it can be sold for $20,000.
Which of the following amounts is a sunk cost?
A) $200,000 
B) $150,500 
C) $500,000 
D) $175,000

Quizplus · Accepted Answer

The sunk cost is the amount that has already been incurred and cannot be recovered, regardless of the decision made. In this case, the $20,000 that the old machine can be sold for is not a sunk cost because it is a future revenue and not an amount that has already been incurred. Therefore, the best choice is D, $175,000 which is the cost of the new machine that Sala Co. is considering purchasing.

Sala Co Is Contemplating the Replacement of an Old Machine with with a New