Mell Co. manufactured 100 personal computers at a cost of $30,000. It can sell them as is for $65,000, or install hard disks in them and sell them for $105,000. The $30,000 original manufacturing cost is:
A) An out-of-pocket cost because it has already been paid.
B) A sunk cost because it is not relevant to the decision.
C) An incremental cost because it is relevant to the decision.
D) A fixed cost because it will remain the same no matter which action is taken.

Question

Quizplus · Accepted Answer

The $30,000 original manufacturing cost is a sunk cost because it has already been incurred and cannot be recovered, regardless of whether the computers are sold as is or with hard disks installed. Therefore, it is not relevant to the decision of whether to install hard disks or not.

Mell Co Manufactured 100 Personal Computers at a Cost of $30,000