Joe Pre-Orders a Non-Refundable Movie Ticket

question 12

Multiple Choice

Joe pre-orders a non-refundable movie ticket. He then reads a number of reviews of the movie in question that make him realise that he will not enjoy it. He goes to see it anyway, rationalising that otherwise his money will have been wasted. Is Joe succumbing to the Sunk Cost Fallacy?

• A)No, because going to see the movie means that the product of his initial investment was realised as originally planned.
• B)Yes, since he invested a valuable asset, his time, in a project based on its previous costs.
• C)No, because the cost of the movie was not recoverable and would have been lost whatever action he took.
• D)No, because he incurred no further costs by going to see the movie.

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Definitions:

Property Tax Expense

The amount paid by property owners to municipal or local governments based on the assessed value of their property.

Controllable Cost

An expense that can be directly controlled or influenced by a manager or decision maker within a specific timeframe.

Manufacturing Department

A specific division within a company where goods are produced, focusing on the transformation of raw materials into finished products.

Absorption Costing

An accounting method that includes all manufacturing costs — direct materials, direct labor, and both variable and fixed manufacturing overhead — in the cost of a product.