A company is considering replacing old equipment with new equipment.Which of the following is a relevant cost for incremental analysis?
A)Total accumulated depreciation of the old equipment
B)Cost of the old equipment
C)Annual operating cost of the new equipment
D)Book value of the old equipment

Question

Quizplus · Accepted Answer

The annual operating cost of the new equipment is relevant because it is a cost that will be incurred if the company chooses to replace the old equipment with the new equipment. The other options are not relevant costs for this decision. The total accumulated depreciation and book value of the old equipment are sunk costs and do not affect the decision to replace the equipment. The cost of the old equipment is also a sunk cost and does not reflect the cost of replacing it with new equipment.

A Company Is Considering Replacing Old Equipment with New Equipment