Please show work!! Coco company has spent $750,000 on research developing a new
ID: 2615339 • Letter: P
Question
Please show work!!
Coco company has spent $750,000 on research developing a new type of transformer. For this transformer to now be manufactured, the firm will need to expand into an empty building that it currently owns. The firm was offered $2,700,000 last week for that building. An additional $820, 000 will be required for new equipment and building improvements. Labor and material costs are estimated at $25,000 per transformer. Interest expense on the loan needed to finance the production of this new transformer will be $152,000 a year. Which one of these correctly identifies the sunk costs?
$2,700,000 value of the building
$750,000 for research
$2,700,000 value of the building plus $820,000 for new equipment and improvements
$152,000 for interest plus $1,430,000 for research
$2,700,000 for the building plus $1,430,000 for research
$2,700,000 value of the building
$750,000 for research
$2,700,000 value of the building plus $820,000 for new equipment and improvements
$152,000 for interest plus $1,430,000 for research
$2,700,000 for the building plus $1,430,000 for research
Explanation / Answer
Answer
$ 750,000 for research.
Explanation :
Sunk costs are the costs which are already incurred and can not recover by any means.
In this case research cost is sunk cost.