Question

1. The Industries has 50 obsolete desktop computers that are carried in inventory at a total cost of $27,800. If these computers are upgraded at a total cost of $12,000, they can be sold for a total of $32,000. As an alternative, the computers can be sold in their present condition for $12,200. The sunk cost in this situation is:

2. In order to maintain consistency, a cost that is relevant in one decision should be regarded as relevant in other decisions as well.

3.K&J Products processes sugar cane in Hawaii. The company buys a batch of sugar cane from farmers for $190 which is then crushed in the company's plant at a cost of $111. Two intermediate products, cane fiber and cane syrup, are created from the crushing process. The cane fiber can be sold at the split off point for $121 or processed further at a cost of $113 to make the end product (industrial fiber) that can be sold for $245. The cane syrup can be sold at the split off point for $141 or processed further at a cost of $129 to make the end product (molasses) that can be sold for $303. What is the financial advantage (or disadvantage) for the company from processing one batch of sugar cane into the end products - industrial fiber and molasses?

Answer 1

Answer 1

Sun Cost refers to the cost that has already been incurred and is not affected by the decision poted.

In this case, COST OF $ 27,800 IS SUNK COST because it has already been incurred in the past.

Answer 2

TRUE

While comparing decisions, relevant costs of both decisions are considered to maintain consistency.

Answer 3

Financial advantage

$       44

'

Calculations:

Process further	Amount	Sale at split off point	Amount
Cane Fiber		Sales value - cane fiber	$     121
Sales value after processing	$     245	Sales value - cane syrup	$     141
Less: Extra Cost	$   (113)
Cane syrup
Sales value after processing	$     303
Less: Extra Cost	$   (129)
Net benefit	$     306	Net benefit	$     262
Financial advantage	$       44