23. Outdoor Living Company has just received a special order for 500 hammocks. O

Question

23. Outdoor Living Company has just received a special order for 500 hammocks. Outdoor Living has sufficient idle capacity to accept the order. Accepting the order will increase Outdoor Living's variable manufacturing costs. Which type of cost is considered a sunk cost to Outdoor Living's decision of whether to accept or reject the special order?

a.Labor cost to make the 500 hammocks

b. Depreciation on equipment that would be used to make the hammocks

c. Materials handling cost

d. Raw materials to make the 500 hammocks

Explanation / Answer

The correct answer is

b. Depreciation on equipment that would be used to make the hammocks

The depreciation will be the sunk cost. The cost cost is the cost which do not affect the decision of accepting/ rejecting a particular order, it is the coist that has already been occured.

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