Reference no: EM131381391

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. 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