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Financial & Managerial Accounting
Found in: Page 1049
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Why are sunk costs irrelevant in deciding whether to sell a product in its present condition or to make it into a new product through additional processing?

The sunk cost does not affect the future decisions of the company.

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Step by Step Solution

Step 1: Definition of Sunk Cost

The sunk cost is a cost that is related to a past decision. The sunk cost cannot be changed or recovered. This cost is irrelevant to future decisions.

Step 2: Sunk cost is irrelevant while making future decisions-

The sunk cost is irrelevant to deciding whether to sell a product in its present condition or make it into a new product because it has already occurred, and no current amount of the sunk cost remains. The company cannot recover the sunk cost. Hence, this is why the sunk cost is irrelevant in deciding.

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