Hartley's Meat Pies is considering replacing its existing delivery van with a new one. The new van can offer considerable savings in operating costs. Information about the existing van and the new van follow:

Relevant costs for this decision include ________.
A) the original cost of the existing van
B) accumulated depreciation
C) the annual operating cost
D) the book value of the existing van

Question

Hartley's Meat Pies is considering replacing its existing delivery van with a new one. The new van can offer considerable savings in operating costs. Information about the existing van and the new van follow:

Relevant costs for this decision include ________.

Relevant costs for this decision include ________.
A) the original cost of the existing van 
B) accumulated depreciation 
C) the annual operating cost 
D) the book value of the existing van

Quizplus · Accepted Answer

The relevant costs for this decision are the annual operating cost of the existing van and the annual operating cost of the new van. The original cost of the existing van, accumulated depreciation, and the book value of the existing van are sunk costs and not relevant to this decision. The decision should be based on the incremental difference in annual operating costs between the existing van and the new van.

Hartley's Meat Pies Is Considering Replacing Its Existing Delivery Van