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  3. (10 points) long-term product costs are defined as

(10 points) Long-term product costs are defined as the minimum we need to charge for...

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Accounting

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(10 points) Long-term product costs are defined as the minimum we need to charge for our product to stay in business forever. Suppose our business uses a machine that needs to be replaced every four years. We bought the machine at the beginning of 2010 for 400,000 and charge our products 100,000 in annual depreciation since then. In 2012, the same machine started selling for 300,000 and it is highly likely that the price drop of 100,000 is going to be permanent. Which of the following is true about our long-term costs in 2012: the 400,000 we paid for the machine are sunk costs and should not be allocated the price drop of 100,000 represents sunk costs and should not be allocated after 2012 O long-term costs will go down after we buy a new machine in 2014 long-term costs remain constant and do not fluctuate with prices of production equipment long-term costs go down in 2012 only if we buy the new machine O depreciation is only relevant for short-term costs, long-term costs are unaffected O none of those

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