Home Industries is considering replacing a machine that is presently used in its production process.Which of the following amounts represents a sunk cost? $$\begin{array} { | l | r | r | }
\hline & \text { Old Machine } & \begin{array} { c }
\text { Replacement } \
\text { Machine }
\end{array} \
\hline \text { Original cost } & \$ 55,000 & \$ 46,000 \
\hline \text { Remaining useful life in years } & 5 & 5 \
\hline \text { Current age in years } & 5 &0 \
\hline \text { Book value } & \$ 30,000 & \
\hline \text { Current disposal value in cash } & \$ 9,000 & \
\hline \text { Future disposal value in cash (in 5 years) } &\$0&\$0 \
\hline \text { Annual cash operating costs } &\$ 7,000 & \$ 4,500 \
\hline
\end{array}$$

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? $$\begin{array} { | l | r | r | } 
\hline & \text { Old Machine } & \begin{array} { c } 
\text { Replacement } \
\text { Machine }
\end{array} \
\hline \text { Original cost } & \$ 55,000 & \$ 46,000 \
\hline \text { Remaining useful life in years } & 5 & 5 \
\hline \text { Current age in years } & 5 &0 \
\hline \text { Book value } & \$ 30,000 & \
\hline \text { Current disposal value in cash } & \$ 9,000 &  \
\hline \text { Future disposal value in cash (in 5 years) } &\$0&\$0  \
\hline \text { Annual cash operating costs } &\$ 7,000 & \$ 4,500 \
\hline
\end{array}$$

Quizplus · Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered. In this scenario, the cost of the old machine is a sunk cost because it has already been spent and cannot be recovered, regardless of whether the company decides to replace the machine or not. Therefore, the answer is A) $55,000. The other amounts may be relevant to the decision-making process, but they are not sunk costs.

Home Industries Is Considering Replacing a Machine That Is Presently