Asked by
Chun Hong Leung
on Oct 14, 2024
Verified
Chang Industries has 2,000 defective units of product that already cost $14 each to produce.A salvage company will purchase the defective units as is for $5 each.Chang's production manager reports that the defects can be corrected for $6 per unit,enabling them to be sold at their regular market price of $21.The $14 per unit is a:
A) Incremental cost.
B) Sunk cost.
C) Out-of-pocket cost.
D) Opportunity cost.
E) Period cost.
Sunk Cost
An expenditure that has already been incurred and cannot be recovered, and should not affect future decisions.
Defective Units
Products that fail to meet quality standards or specifications and are often unsellable or subject to returns and repairs.
Salvage Company
A business specialized in saving, recovering, and selling the usable parts of damaged, inoperative, or discarded goods.
- Acquire knowledge on how sunk costs differ from relevant costs in decision-making processes.
Verified Answer
YA
Learning Objectives
- Acquire knowledge on how sunk costs differ from relevant costs in decision-making processes.