Question

You are considering upgrading from your current inkjet printer to a laser printer. Your old printer cost $350. The new printer costs $600. Print cartridges for the old printer cost $80 each, and print cartridges for the new printer cost $120 each. Cartridges for both printers last for approximately 500 sheets of printing. Your roommate has offered to purchase your old printer for $50. Which cost is a sunk cost

Answer 1

Answer:

$300 i.e irrecoverable cost of old printer

Explanation:

Sunk costs refer to those costs incurred in the past which can no longer be recovered. Such costs are considered as irrelevant in decision making process since they have no current or future implications.

For example, research and development costs incurred by an enterprise in the past represent sunk costs since those costs can no longer be recovered and secondly have no current or future implications w.r.t investment decisions.

In the given case, the cost incurred in purchase of old printer is a sunk cost, incurred in the past. The irrecoverable part of the said cost i.e $350 less $50 i.e $300 represents sunk cost. Also, the expenditure on old printer's cartridges which costed $80 apiece would be regarded as a sunk cost.

This cost of $300 cannot be recovered and would be considered irrelevant w.r.t the decision of purchasing a new advanced printer.