A company has 500 obsolete products that are carried in inventory at a total cos

Question

A company has 500 obsolete products that are carried in inventory at a total cost of $720,000. If they are upgraded for a total cost of $100,000, they can be sold for a total of $160,000 or sold in present condition for $50,000. Sunk costs would be... a. $720,000 b. $160,000 c. $50,000 d. $100,000 A company wants to add a new line to an already profitable business. Research indicates that the new line would generate $30,000 in revenue when 25,000 units are produced. If added net income would a. Increase $375(0 b. Increase $8750 c. Decrease $2500 d. Decrease $3250 e. None of the above $0.85/unit $5,000 Indirect fixed cost that is currently in place (unavoidable) $6,250 Variable cost Additional Direct Cost (avoidable) Cecil Company has 3 products stamps, paper, and ribbons. And while the business is profitable overall, they are losing money on the stamps line. If Cecil Company abandons stamps, net income would a. Increase $3,000 b. Decrease $3,000 c. Decrease $6,000 d. Decrease $8,000 e. None of the above Sales Revenue Variable Cost Direct Fixed Cost (avoidable) Indirect Fixed cost allocated from other parts of business Net Income (loss) $27,000 $19,000 $5,000 $6,000 ($3,000)

Explanation / Answer

Problem 1 –

Sunk Cost

In the given case, the Sunk Cost is the past cost which already been incurred i.e. $720,000

Hence, Option A is correct.

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