A company has materials in inventory that cost $1,500 and have no current use. In determining what to do with the materials, the $1,500 is a:

A company has materials in inventory that cost $1,500 and have no current use. In determining what to do with the materials, the $1,500 is a:

• A. Sunk cost
• B. Avoidable cost
• C. Opportunity cost
• D. Incremental cost

Answer: (A)

The main idea is that sunk costs are past expenditures that cannot be recovered and should not influence future decisions. Here, the materials have already cost 1,500 and have no current use, so that amount is money already spent. No matter what action you take—dispose, sell, or hold for possible later use—the 1,500 cannot be recovered solely by the decision now. In planning and control, you ignore this sunk amount and focus on future cash flows, such as any salvage value from selling the materials or any disposal costs. The other terms describe costs that affect decision outcomes in different ways (avoided by choosing one alternative, the foregone benefit of the next best option, or the additional cost caused by a change in action), but they do not capture the reality that this 1,500 is already incurred and not a factor in the future decision.

The main idea is that sunk costs are past expenditures that cannot be recovered and should not influence future decisions. Here, the materials have already cost 1,500 and have no current use, so that amount is money already spent. No matter what action you take—dispose, sell, or hold for possible later use—the 1,500 cannot be recovered solely by the decision now. In planning and control, you ignore this sunk amount and focus on future cash flows, such as any salvage value from selling the materials or any disposal costs. The other terms describe costs that affect decision outcomes in different ways (avoided by choosing one alternative, the foregone benefit of the next best option, or the additional cost caused by a change in action), but they do not capture the reality that this 1,500 is already incurred and not a factor in the future decision.