sunk cost
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![$299.52 per unit
$546.36 per unit
$387.82 per unit
$152.68 per unit](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F30da02c1-a4fa-44e5-8122-811dc4853c02%2Fdd08abcd-1590-4f2a-8c37-d0c6da46161f%2F4k14c6_processed.png&w=3840&q=75)
Transcribed Image Text:$299.52 per unit
$546.36 per unit
$387.82 per unit
$152.68 per unit
![Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $534,000 or a new model 220 machine
costing $422,000 to replace a machine that was purchased 5 years ago for $473,000. The old machine was used to make product 143L until it broke
down last week. Unfortunately, the old machine cannot be repaired.
Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to
continue making product 143L.
Management also considered, but rejected, the alternative of simply dropping product 143L. If that were done, instead of investing $422,000 in the new
machine, the money could be invested in a project that would return a total of $469,000.
In making the decision to buy the model 220 machine rather than the model 370 machine, the sunk cost was:
Multiple Choice
$469,000
$422,000
$473,000
$534,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F30da02c1-a4fa-44e5-8122-811dc4853c02%2Fdd08abcd-1590-4f2a-8c37-d0c6da46161f%2Fivi6qk_processed.png&w=3840&q=75)
Transcribed Image Text:Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $534,000 or a new model 220 machine
costing $422,000 to replace a machine that was purchased 5 years ago for $473,000. The old machine was used to make product 143L until it broke
down last week. Unfortunately, the old machine cannot be repaired.
Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to
continue making product 143L.
Management also considered, but rejected, the alternative of simply dropping product 143L. If that were done, instead of investing $422,000 in the new
machine, the money could be invested in a project that would return a total of $469,000.
In making the decision to buy the model 220 machine rather than the model 370 machine, the sunk cost was:
Multiple Choice
$469,000
$422,000
$473,000
$534,000
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