A company is planning to replace an old machine with a new one. Which of the following is a sunk cost in this decision?

Question

Quizplus · Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered. The original cost of the old machine is a sunk cost because the company has already paid for it and cannot recover that cost. The cost of the new machine (A) and future maintenance costs of the old machine (C) are not sunk costs because they are future expenses that can be avoided if the company decides not to replace the old machine. The selling price of the old machine (B) is not a sunk cost because it is a potential future benefit that can be earned if the old machine is sold.

A Company Is Planning to Replace an Old Machine with a New