The Lantern Corporation has 1,000 obsolete lanterns that are carried in inventory at a manufacturing cost of $20,000. If the lanterns are remachined for $5,000, they could be sold for $9,000. Alternatively, the lanterns could be sold for scrap for $1,000. Which alternative is more desirable and what are the total relevant costs for that alternative?

Scrap and $21, 000.

Scrap and $1, 000.

Remachine and $25,000.

Remachine and $5,000.

Existing fixed manufacturing overhead costs are not relevant in deciding whether to accept a special order.

True

False

Which of the statements below is correct about sunk costs?

Sunk costs are not relevant to decision making.

Sunk costs are relevant to long-run decisions but not to short-run decisions.

Sunk costs are always relevant to decision making.

Sunk costs acts as a substitute for opportunity costs.

Tolar Company has 400 obsolete desk calculators that are carried in inventory at a total cost of $26,800. If these calculators are upgraded at a total cost of $10,000, they can be sold for a total of $30,000. As an alternative, the calculators can be sold in their present condition for $11,200.

The sunk cost in this situation is:

$26,800.

$10,000.

$11,200.

$0.

In a make or buy decision, which of the costs below are relevant?

Fixed costs that can be avoided in the future if the decision is to buy.

Only direct material costs.

Only conversion costs.

Fixed costs that will not change regardless of the decision.