Dodo company is disposing of equipment that was originally purchased for $700,000 and has $140,000 of accumulated depreciation to date. the same equipment would cost $950,000 to replace. The total amount of sunk cost in this decision is $560,000.
What is sunk cost?
An investment that has already been made but cannot be recouped is referred to as a sunk cost, also known as a retrospective cost. Sunk costs in company include things like marketing, research, installing new software or equipment, paying for workers and benefits, or paying for facilities.
What is sunk cost formula?
Find the item's current as-new market price to determine the sunk cost of a piece of equipment that needs to be replaced. Next, make an effort to determine the item's current market value, which should be simple with some web research. To get the sunk cost, deduct the current value from the original cost.
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