Home Industries is considering replacing a machine that is presently used in its production process.Which of the following amounts represents a sunk cost? $$\begin{array} { | l | r | r | }
\hline & \text { Old Machine } & \begin{array} { l }
\text { Replacement } \
\text { Machine }
\end{array} \
\hline \text { Original cost } & \$ 55,000 & \$ 45,000 \
\hline \text { Remaining useful life in years } & 5 & 5 \
\hline \text { Current age in years } & 5 & 0\
\hline \text { Book value } & \$ 33,000 & \
\hline\text { Current disposal value in cash }&\$9,000\
\hline \text { Furrent disposal value in cash (in } 5 \text { years)} & \$ 0 & \$ 0 \
\hline \text { Annual cash operating costs } & \$ 8,000 & \$ 4,000 \
\hline
\end{array}$$

Question

Home Industries is considering replacing a machine that is presently used in its production process.Which of the following amounts represents a sunk cost? $$\begin{array} { | l | r | r | } 
\hline & \text { Old Machine } & \begin{array} { l } 
\text { Replacement } \
\text { Machine }
\end{array} \
\hline \text { Original cost } & \$ 55,000 & \$ 45,000 \
\hline \text { Remaining useful life in years } & 5 & 5 \
\hline \text { Current age in years } & 5 & 0\
\hline \text { Book value } & \$ 33,000 & \
\hline\text { Current disposal value in cash }&\$9,000\ 
\hline \text { Furrent disposal value in cash (in } 5 \text { years)} & \$ 0 & \$ 0 \
\hline \text { Annual cash operating costs } & \$ 8,000 & \$ 4,000 \
\hline
\end{array}$$

Quizplus · Accepted Answer

The original cost of the old machine ($55,000) is a sunk cost because it has already been incurred and cannot be recovered.

Home Industries Is Considering Replacing a Machine That Is Presently