Answered step by step
Verified Expert Solution
Question
1 Approved Answer
6. Shelly, who runs a small business, invests $20,000 in equipment that would help her company reduce per-unit production cost from $15 to $12. She
6. Shelly, who runs a small business, invests $20,000 in equipment that would help her company reduce per-unit production cost from $15 to $12. She expects the equipment to be in use for the next seven years.1 However, after two years she discovers that if she outsourced this particular phase of the production process to a larger company, her per-unit cost would be $7 instead. At this point, what should Shelly do? a. Keep the equipment in use, because it cost $20,000 and simply discarding it would greatly reduce the return on that particular investment b. Write off the equipment as a sunk cost and allow for outsourcing since it is cheaper c. Only consider outsourcing in five years, since the equipment is still good for another five years d. None of the above
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started