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Breezy Company is disposing of equipment that was originally purchased for $550,000 and has $145,000 of accumulated depreciation to date. The same equipment would cost $670,000 to replace. What is the total amount of sunk cost in this decision

Respuesta :

Answer:

$405,000

Explanation:

The calculation of total amount is shown below:-

If the company disposes of the equipment to buy the new equipment, the sunk cost will be the old equipment's book value.

Sunk cost = Book value of the old Equipment

Sunk cost = Cost of equipment - Accumulated Depreciation

= $550,000 - $145,000

= $405,000

Therefore for computing the sunk cost we simply deduct the accumulated Depreciation from cost of equipment

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