Question 2 (4 points) V Company has 300 obsolete microcomputers that were manufa

Question

Question 2 (4 points)

V Company has 300 obsolete microcomputers that were manufactured at a cost of $440,000. If these microcomputers are upgraded at a total cost of $110,000, they can be sold for a total of $130,000. As an alternative, the microcomputers can be sold in their present condition for $70,000. If the company decides to sell the microcomputers in their present condition, what is the sunk cost, if any?

Question 2 options:

There is no sunk cost in this decision problem.

$440,000

$550,000

$130,000

a)

There is no sunk cost in this decision problem.

b)

$440,000

c)

$550,000

d)

$130,000

Explanation / Answer

Correct Answer (b) $440000

Explanation

Sunk cost is the cost that has been already incurred. Future decisions are taken without considering Sunk Cost.

In the Given case the company can earn $70000 if microcomputer is sold without further processing. Net return of selling microcomputer after processing is only $20000 which is lower than present sales value of $70000. For decision making microcomputer should be sold at $70000 without further processing and $440000 will be considered as Sunk Cost.

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