Chang Industries has 1,600 defective units of product that already cost $42 each to produce. A salvage company will purchase the defective units as is for $19 each. Chang's production manager reports that the defects can be corrected for $34 per unit, enabling them to be sold at their regular market price of $35. The $42 per unit is a:

Sunk cost

Explanation:

The Sunk Cost is the cost i.e. already incurred and have no impact with respect to the decision making. Also it can be recovered once it is incurred

Since in the given situation the $42 per unit is spend on the defective goods production this represent that is already spent

So, the $42 per unit represent the sunk cost

Hence, the same is relevant

Equity Financing

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