Suppose you are a manager of a factory. You purchase five (5) new machines at one million dollars each. If you can resell two of the machines for $500,000 and three of the machines for $200,000, what are the sunk costs of purchasing the machines?

The sunk costs of purchasing the machines is $3,400,000

Explanation:

The concept of sunk costs refer to costs that have been incurred by the entity which are not recoverable.

From the definition, it is clear since the machines have second-hand values,the portion of the costs not covered by the second-hand value is the sunk cost

Hence sunk costs could be derived by the formula below:

Sunk costs=Initial acquisition cost-Second-hand value

Initial acquisition costs=5*$1000000

Initial costs of acquisition =$5000000

Second-hand value=($500000*2)+($200000*3)

Second-hand value=$1600000

Sunk costs=$5000000-$1600000

Sunk costs=$3400000

explanation: doctrine of respondeat superior is a legal doctrine that is commonly used in tort. this principle makes an employer or principal legally responsible for the wrongful acts done by an employee or agent, if such acts occur within the scope of the employment or agency.