Question

Weston Steel purchased a new coal furnace six years ago at a cost of $2.2 million. Last year, the government changed the emission requirements and this furnace cannot meet those standards. Thus, Weston can no longer use the furnace, nor has it been able to locate anyone willing to purchase the furnace. Given the current situation, the furnace is best described as which type of cost?A. BookB. ErosionC. MarketD. SunkE. Opportunity

Answer 1

Answer:

D. Sunk

Explanation:

A sunk cost is a cost that has already been spent but in any case can not be recovered, and past spent should not affect future business decisions.

The main examples of sunk cost are spending on research, equipment or machinery purchasing, renting, payroll, marketing or advertising expenses.

In this case the furnace will no longer be considered in future business decisions, and therefore affecting the profit margin.