Breezy Company is disposing of equipment that was originally purchased for $616,000 and has $232,000 of accumulated depreciation to date. The same equipment would cost $785,000 to replace. What is the total amount of sunk cost in this decision?

Question

Quizplus · Accepted Answer

The sunk cost in this decision is the original cost of the equipment ($616,000) minus the accumulated depreciation ($232,000), which equals $384,000. The replacement cost of $785,000 is not a sunk cost because it is a future cost that will only be incurred if the company decides to replace the equipment.

Breezy Company Is Disposing of Equipment That Was Originally Purchased