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Differential, Opportunity, and Sunk Costs

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Differential, Opportunity, and Sunk Costs [LO7] Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics. The hospital's Radiology Department is considering replacing an old inefficient X-ray machine with a state-of-the-art digital X-ray machine. The new machine would provide higher quality X-rays in less time and at a lower cost per X-ray. It would also require less power and would use a color laser printer to produce easily readable X-ray images. Instead of investing the funds in the new X-ray machine, the Laboratory Department is lobbying the hospital's management to buy a new DNA analyzer.

Required:

For each of the items below, decide whether it should be considered a differential cost, an opportunity cost, or a sunk cost in the decision to replace the old X-ray machine with a new machine. If none of the categories apply for a particular item, select blank.

Item Differential Cost Opportunity Cost Sunk Cost
Ex. Cost of X-ray film used in the old machine X
1. Cost of the old X-ray machine
2. The salary of the head of the Radiology Department
3. The salary of the head of the Pediatrics Department
4. Cost of the new color laser printer
5. Rent on the space occupied by Radiology
6. The cost of maintaining the old machine
7. Benefits from a new DNA analyzer
8. Cost of electricity to run the X-ray machines

Item
1. Cost of the old X-ray machine __________
2. The salary of the head of the Radiology Department __________
3. The salary of the head of the Pediatrics Department __________
4. Cost of the new color laser printer __________
5. Rent on the space occupied by Radiology __________
6. The cost of maintaining the old machine __________
7. Benefits from a new DNA analyzer __________
8. Cost of electricity to run the X-ray machines __________

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Solution Summary

Differential, Opportunity, and Sunk Costs are examined.

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Item
1. Cost of the old X-ray machine: Sunk Cost (The cost is already incurred)
2. The salary of the head of the Radiology Department: None of the category apply here
3. The salary of the head ...

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