A Manager Invests $400,000 in a Technology to Reduce Overall

question 4

Multiple Choice

A manager invests $400,000 in a technology to reduce overall costs of production.The company managed to reduce their cost per unit from $2 to $1.85.After a year,the manager has an opportunity to outsource production to another company at a cost per unity of $1.75.If you are the manager,you

• A)should consider the $400,000 as sunk cost and therefore it should not be relevant to the decision.
• B)should base your decision upon economic profit and not accounting profit
• C)should avoid the fixed-cost fallacy
• D)all the above

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Expert Thought

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