A company converts space to use as a manufacturing facility. Previously it was rented to another company as a warehouse. This is an example of a sunk cost.

Question

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This is not an example of a sunk cost. The cost of converting the space to a manufacturing facility is a relevant cost that will affect the company's future cash flows. The fact that the space was previously used as a warehouse is not relevant to this decision.

A Company Converts Space to Use as a Manufacturing Facility