Maldovar Company is considering purchasing a new machine to replace a machine purchased one year ago that is not achieving the expected results. The following information is available: Expected maintenance costs of new machine $12,000 per year
Purchas price of existing machine $150,000
Expected cost savings of new machine $20,000 per year
Expected maintenance costs of existing machine $8,000 per year
Resale value of existing machine $35,000
Which of these items is IRRELEVANT?
A) Expected maintenance costs of new machine
B) Expected maintenance costs of existing machine
C) Purchase cost of existing machine
D) Expected resale value of existing machine

Question

Quizplus · Accepted Answer

The purchase cost of the existing machine is irrelevant because it is a sunk cost and cannot be changed. The decision to purchase a new machine should be based on the expected cost savings and resale value of the existing machine, as well as the expected maintenance costs of both machines.

Maldovar Company Is Considering Purchasing a New Machine to Replace