Management of Childers Corporation Is Considering Whether to Purchase a New

question 160

Multiple Choice

Management of Childers Corporation is considering whether to purchase a new model 380 machine costing $278,000 or a new model 230 machine costing $207,000 to replace a machine that was purchased 3 years ago for $266,000. The old machine was used to make product R16K until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model 230 machine. It has less capacity than the new model 380 machine, but its capacity is sufficient to continue making product R16K.
Management also considered, but rejected, the alternative of simply dropping product R16K. If that were done, instead of investing $207,000 in the new machine, the money could be invested in a project that would return a total of $305,000.
In making the decision to buy the model 230 machine rather than the model 380 machine, the sunk cost was:

• A)$305,000
• B)$266,000
• C)$278,000
• D)$207,000

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Definitions:

Anxiety-Arousing

Inducing or leading to increased feelings of anxiety or stress.

Counterconditioning

A behavior therapy technique that involves replacing an unwanted response to a stimulus with a desired response.

Psychodynamic Therapy

A form of depth psychology, the primary focus of which is to reveal the unconscious content of a client's psyche in an effort to alleviate psychic tension.

Psychoanalytic Therapy

A therapeutic method rooted in Freudian theory, focusing on uncovering and analyzing unconscious motivations and conflicts.