Breezy Company is disposing of equipment that was originally purchased for $600,000 and has $240,000 of accumulated depreciation to date.The same equipment would cost $800,000 to replace.What is the total amount of sunk cost in this decision?
A) $240,000
B) $360,000
C) $840,000
D) $800,000

Question

Quizplus · Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered. In this case, the original purchase price of the equipment ($600,000) minus the accumulated depreciation ($240,000) equals $360,000, which is the sunk cost. The replacement cost is not relevant to calculating sunk costs.

Breezy Company Is Disposing of Equipment That Was Originally Purchased