Your roommate, Jull Blalock, purchased a new portable DVD player just before thi
ID: 2434895 • Letter: Y
Question
Your roommate, Jull Blalock, purchased a new portable DVD player just before this school term for $80. Shortly after the semester began, her new DVD player was crushed by an errant 'flying plant' during a party at her apartment. Returning the equipment to the retailer, Blalock was informed that the estimated cost of repairs was $65 because the damage was not covered by the manufacturer's warranty.Pondering the figures, Blalock was ready to decide to make repairs; after all, she had recently paid $80 for the equipment. However, before making a decision, she asked for your advice.
a. Using concepts from this chapter, prepare a brief presentation outlining factors that Blalock should consider in making her decision.
b. Continue the presentation in (a) by discussing the options Blalock should consider in making her decisions. Start by defining a base case against which alternatives can be compared.
Explanation / Answer
The cost of the portable DVD in this case is a sunk cost. Sunk costs are the costs which have already been incurred and cannot be recovered. Hence , the cost of repairs should not be compared to the cost of the DVD player. However, the effective remaining useful life should be taken into consideration. If the remaining useful life of the DVD player is reduced,then there is no point in getting the DVD player repaired .
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