A manager invests $400,000 in a technology that should reduce the overall costs of production. The company managed to reduce their cost per unit from $2 to $1.85. After the investment has been made, the $400,000 investment is a. Considered a loss b. Considered sunk costs, not relevant in further decision making c. Considered sunk costs, but still relevant in further decision making d. Considered a profit

Question

Andreas Pennington

Business

16 July, 03:44

A manager invests $400,000 in a technology that should reduce the overall costs of production. The company managed to reduce their cost per unit from $2 to $1.85. After the investment has been made, the $400,000 investment is a. Considered a loss b. Considered sunk costs, not relevant in further decision making c. Considered sunk costs, but still relevant in further decision making d. Considered a profit

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Bridge · Answer 1

Option B. Considered sunk costs, not relevant in further decision making

Explanation:

The reason is that the past costs are not relevant costs for future opportunities as it does not qualifies following conditions except that it was cash flow in nature:

Cash flow Future related Differential

So the cost that doesn't qualifies all of the three conditions are not considered relevant for decision making and is deemed sunk cost for future decision making process, which means it is not considered.

So the option B is correct.