When deciding to purchase a new cutting machine or continue using the old machine,the following costs are all relevant EXCEPT the:
A)$100,000 cost of the old machine.
B)$40,000 cost of the new machine.
C)$20,000 disposal value of the old machine.
D)$6,000 annual savings in operating costs if the new machine is purchased.

Question

Quizplus · Accepted Answer

The $100,000 cost of the old machine is a sunk cost and is not relevant to the decision of purchasing a new machine or continuing with the old one. Sunk costs are past costs that have already been incurred and cannot be recovered, so they should not influence future business decisions.

When Deciding to Purchase a New Cutting Machine or Continue