Question

GL Plastic Molders spent $1,200 last week repairing a machine. This week the company is trying to decide if the machine could be better utilized if they assigned it a proposed project. When analyzing the proposed project, the $1,200 should be treated as which type of cost?

A. opportunity
B. fixed
C. incremental
D. erosion
E. sunk

Answer 1

The correct answer of the given question would be option E. given in the answer options or sunk.

Step-by-step explanation:

• In Economics or Business, sunk costs are considered as the costs or expenses incurred by any firm or company that are usually non-recoverable.
• Sunk costs in business basically refers to the costs or expenses that are already incurred or spend by the firm or company and cannot be recovered under any circumstances.
• In this instance,note that GL Plastic Molders has already spent $1200 last week for repairing a machine.Hence, the $1200 signifies a business liability that has already been paid off for a particular service and cannot be refunded.
• Therefore,while evaluating the better utilization of the concerned cost or expense in the future,the $1200 will be treated or regarded as Sunk Cost from business or commercial standpoint as it will not regained by the company.