A company is deciding whether to purchase production equipment that can produce units more quickly than the current equipment. Which of the following costs would be relevant to its decision?
A)The original purchase price of the current machinery
B)The additional labor required to run the new equipment
C)The accumulative repairs costs of the current machinery over the years
D)The cost of raw materials

Question

Quizplus · Accepted Answer

The additional labor required to run the new equipment is a relevant cost because it is an incremental cost directly related to the decision to purchase the new equipment. The original purchase price of the current machinery (A) is a sunk cost and is not relevant to this decision. The accumulative repairs costs of the current machinery over the years (C) are also sunk costs and are not relevant to this decision. The cost of raw materials (D) is not directly related to the decision to purchase new equipment and is therefore not a relevant cost in this case.

A Company Is Deciding Whether to Purchase Production Equipment That