Exhibit 7-1
Talmont Products has dropped the price per unit of its smart phone product from $1,060 to $500.There are some units in work-in-process inventory that have costs of $600 per unit associated with them.Talmont could sell these units in their current state for $400.It will cost Talmont $40 to complete these units so that they can be sold for $500 each.
-Refer to Exhibit 7-1.Which of the following amounts is a sunk cost in this problem?

Question

Quizplus · Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered. In this problem, the $600 per unit cost associated with the work-in-process inventory is a sunk cost because it has already been incurred and cannot be recovered regardless of the decision Talmont makes about whether to complete and sell the units or not. The other costs - $1,060 per unit, $40 per unit, and $400 per unit - are not sunk costs because they are either the current price or future costs that are dependent on Talmont's decision about whether to complete and sell the units or not.

Exhibit 7-1 Talmont Products Has Dropped the Price Per Unit of Its