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Assume you have paid $5,000 for some materials used in your business. The project in which...

Assume you have paid $5,000 for some materials used in your business. The project in which those materials were going to be used is then canceled. You have no alternative use for the materials and decide to return them to the company from which they were purchased. The company returns to you $4,000. Which of the following statements is correct?

a.Your fixed cost is $4,000.

b.Your sunk cost is $1,000.

c.Your fixed cost is $5,000.

d.Your sunk cost is $5,000.

e.Your sunk cost is $4,000.

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Answer #1

Ans: b) Your sunk cost is $1,000.

Explanation:

Sunk costs are those costs which can not be recovered if the business or production closed down. So it is not considered for the business decisions.

In the above scenario, when the project in which those materials were going to be used is then canceled , then $1000 would not be revcorved.

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