Janko Wellspring Inc.has a pump with a book value of $24,000 and a four-year remaining life.A new,more efficient pump,is available at a cost of $45,000.Janko can also receive $8,000 for trading in the old pump.The new pump will reduce variable costs by $10,000 per year over its four-year life.The costs not relevant to the decision of whether or not to replace the pump are:
A)$40,000.
B)$8,000.
C)$10,000.
D)$24,000.
E)$16,000.

Question

Quizplus · Accepted Answer

The cost not relevant to the decision is the book value of the old pump ($24,000), as it is a sunk cost that cannot be recovered or changed by the decision to replace the pump.