Chang Industries has 2,000 defective units of product that already cost $14 each to produce. A salvage company will purchase the defective units as is for $5 each. Chang's production manager reports that the defects can be corrected for $6 per unit, enabling them to be sold at their regular market price of $21. The $14 per unit is a: Multiple Choice Sunk cost. Out-of-pocket cost. Period cost. Incremental cost. Opportunity cost.

Question

Business

Armani Moyer

15 August, 21:36

Chang Industries has 2,000 defective units of product that already cost $14 each to produce. A salvage company will purchase the defective units as is for $5 each. Chang's production manager reports that the defects can be corrected for $6 per unit, enabling them to be sold at their regular market price of $21. The $14 per unit is a: Multiple Choice Sunk cost. Out-of-pocket cost. Period cost. Incremental cost. Opportunity cost.

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Emilie Bowen · Answer 1

The correct answer to the following question will be Option A "Sunk cost".

Explanation:

A sunk cost includes money also now invested and therefore not recoverable. In industry, the aphorism that one should "probably waste money to make profits" is expressed in the sunken cost trend. It differs from the potential risks that a company will face, including such inventory purchasing costs as well as drug price choices. 2000 Default units including its drug were already manufactured at $14, this expense was already accrued and seems to be negligible

The other choices corresponding to the specified situation are not. So the proper answer is Alternative A.