Question - Over the past five years, Whitney Vineyard has spent $1,500,000 to purchase land and to prepare it for planting grape vines and $20,000 to plant grapes on that property. It also spent $1,200,000 on a building and equipment to process the grapes and make it into wine. The vines are now established and Whitney Vineyard is preparing for its first year marketing its wine.
The company plans to sell the its wine for $60 per case. It will cost $3.40 in materials (e.g., bottles, corks, packing materials, etc.) and $1.25 in labor to produce each case.
When it launches its new brand of wine on the market, it plans to run an advertising campaign at a cost of $50,000. It also plans to send a marketing kit to each of the 3,000 retailers in its target market. The marketing kits will cost $45.00 each. The company plans to hire two sales representative at a salary of $65,000 per year plus a 4% commission. Its utilities will be $4,000 per month, and its administrative and clerical expenses are budgeted at $80,000 per year.
What are total sunk costs?