An employee of Morgan Corporation has found some partially completed units of Mo
ID: 2385160 • Letter: A
Question
An employee of Morgan Corporation has found some partially completed units of Model X in a dusty corner of the warehouse. A job ticket attached to the units indicates that a total of $750 in manufacturing costs have been used to bring the materials to this point in the manufacturing process. The units can be sold in their current condition for $200 to a scrap metal dealer. If Morgan spends $250 to complete the units, they could be sold for $600.Required: A. What should Morgan do? Why?
B. Identify the sunk cost, if any.
Explanation / Answer
A. Morgan Company should complete the units for $250 because if they sell them for $600, they will make a profit of $350, which is greater than the $200 they would get for selling the units. B. The sunk cost is the $750 in manufacturing costs. This cost has already been incurred and will remain incurred regardless of if Morgan Co sell or finishes the units.