When deciding to lease a new cutting machine or continue using the old machine, the irrelevant cost is ________.
A) $50,000, cost of the old machine
B) $20,000, cost of the new machine
C) $10,000, selling price of the old machine
D) $3,000, annual savings in operating costs if the new machine is purchased

Question

Quizplus · Accepted Answer

The cost of the old machine ($50,000) is a sunk cost and therefore irrelevant to the decision of leasing a new machine or continuing with the old one. Sunk costs are past costs that cannot be recovered and should not influence future business decisions.

When Deciding to Lease a New Cutting Machine or Continue