Suppose you are a manager of a factory.You purchase five (5)new machines at one million dollars each.If you can resell two of the machines for $500,000 and three of the machines for $200,000,what are the sunk costs of purchasing the machines?
A) $5 million
B) $500,000
C) $3.4 million
D) $1.6 million

Question

Quizplus · Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered. The total purchase cost of the machines is $5 million. By reselling two machines for $500,000 each ($1 million total) and three machines for $200,000 each ($600,000 total), the total recouped is $1.6 million. Subtracting this from the initial cost ($5 million - $1.6 million) leaves $3.4 million as the sunk costs.

Suppose You Are a Manager of a Factory