Buckner Company is considering replacing a machine that is presently used in the production of its product. The following data are available:
-The total relevant costs to consider if the old machine is kept are
A) $480,000.
B) $280,000.
C) $376,000.
D) $576,000.

Question

Buckner Company is considering replacing a machine that is presently used in the production of its product. The following data are available: 
-The total relevant costs to consider if the old machine is kept are
A) $480,000. 
B) $280,000. 
C) $376,000. 
D) $576,000.

Quizplus · Accepted Answer

The relevant costs for the decision of replacing the old machine are the costs that will change if the decision is made. In this case, the relevant costs are: 
- The cost of the new machine: $200,000 
- The salvage value of the old machine: $20,000 
- The annual cost savings from the new machine: $100,000

Therefore, if the new machine is purchased, the total relevant cost would be $200,000 - $20,000 + $100,000 = $280,000. This is less than the total relevant cost of keeping the old machine, which is $480,000. Therefore, the best choice is to replace the old machine with the new machine.

Buckner Company Is Considering Replacing a Machine That Is Presently