Differential, Opportunity, and Sunk Costs [LO7]

The Sorrento Hotel is a four-star hotel located in downtown Seattle. The hotel’s operations vice president would like to replace the hotel’s antiquated computer terminals at the registration desk with attractive state-of-the-art flat-panel displays. The new displays would take less space, would consume less power than the old computer terminals, and would provide additional security since they can only be viewed from a restrictive angle. The new computer displays would not require any new wiring. The hotel’s chef believes the funds would be better spent on a new bulk freezer for the kitchen.

Required:

For each of the items below, indicate by placing an X in the appropriate column whether it should be considered a differential cost, an opportunity cost, or a sunk cost in the decision to replace the old computer terminals with new flat-panel displays. If none of the categories apply for a particular item, leave all columns blank.

Transcribed Image Text:

Item Ex. Cost of electricity to run the terminals. 1. Cost of the new flat-panel displays 2. Cost of the old computer terminals 3. Rent on the space occupied by the registration desk 4. Wages of registration desk personnel.. 5. Benefits from a new freezer.... 6. Costs of maintaining the old computer terminals 7. Cost of removing the old computer terminals 8. Cost of existing registration desk wiring... Differential Opportunity Sunk Cost Cost Cost