Ontel Engineers Proposed Developing a 10-Gigahertz Microprocessor in Early 2011

question 114

Multiple Choice

Ontel engineers proposed developing a 10-Gigahertz microprocessor in early 2011 at a cost of $20 million for a working prototype.By mid-2012,the $20 million had been spent with no prototype.The engineers request an additional $10 million to finish the project.For convenience,assume the marginal cost of producing the chip once it is developed is zero.
-In early 2011,sunk costs of this project were __________ and,in mid-2012,sunk costs were __________.

• A) 0;$20 million
• B) 0;$30 million
• C) $20 million;$30 million
• D) $20 million;$10 million
• E) $20 million;0

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Definitions:

Total Fixed Costs

The sum of all costs that do not change with the level of output or activity within a certain period.

Cost-Volume-Profit Analysis

The examination of the relationships among selling prices, sales and production volume, costs, expenses, and profits.

Contribution Margin

The amount of revenue remaining after deducting variable costs, which contributes to covering fixed costs and generating profit.

Gross Profit

The financial metric indicating the difference between revenue and the cost of goods sold, showcasing how efficiently a company is producing or sourcing its products.