A delivery company spent $3,500 last week upgrading one of its trucks. This week the company is trying to decide if this upgraded truck could be better utilized if they assigned it a proposed project. When analyzing the proposed project, the $3,500 should be treated as which type of cost?

Question

Business

Kelton Christensen

13 April, 11:29

A delivery company spent $3,500 last week upgrading one of its trucks. This week the company is trying to decide if this upgraded truck could be better utilized if they assigned it a proposed project. When analyzing the proposed project, the $3,500 should be treated as which type of cost?

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Answers (1)

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Reuben Terrell · Answer 1

Answer: Sunk cost

Explanation:

Sunk cost means the expense which has been already met by the firm and they cannot be recovered at any rate. Sunk costs are not based on the future decisions as these expenses for the firm are the same irrelevant to the project which it is assigned. Sunk costs are not a part of the budget plan.

In the given scenario the delivery company has spent $3500 in order to upgrade the truck. So $3500 is treated as sunk cost in the proposed project.