Wonderful Company is considering replacing a machine that is presently used in the production of its product.The following data are available: $$\begin{array} { l r r }
& \text { Old Machine } & \begin{array} { r }
\text { Replacement } \
\text { Machine }
\end{array} \
\text { Original cost } & \$ 333,000 & \$ 222,000 \
\text { Useful life in years } & 6 & 5 \
\text { Current age in years } & 1 & 0 \
\text { Book value } & \$ 198,000 & - \
\text { Disposal value now } & \$ 132,000 & - \
\text { Disposal value in 5 years } & \$ 10,000 & \$ 50,000 \
\text { Annual cash operating costs } & \$ 45,000 & \$ 34,000
\end{array}$$ The _____ is a sunk cost.
A)disposal value of the old machine
B)original cost of the old machine
C)annual cash operating costs of the old machine
D)annual cash operating costs of the replacement machine

Question

Wonderful Company is considering replacing a machine that is presently used in the production of its product.The following data are available: $$\begin{array} { l r r } 
& \text { Old Machine } & \begin{array} { r } 
\text { Replacement } \
\text { Machine }
\end{array} \
\text { Original cost } & \$ 333,000 & \$ 222,000 \
\text { Useful life in years } & 6 & 5 \
\text { Current age in years } & 1 & 0 \
\text { Book value } & \$ 198,000 & - \
\text { Disposal value now } & \$ 132,000 & - \
\text { Disposal value in 5 years } & \$ 10,000 & \$ 50,000 \
\text { Annual cash operating costs } & \$ 45,000 & \$ 34,000
\end{array}$$ The _____ is a sunk cost.
A)disposal value of the old machine
B)original cost of the old machine
C)annual cash operating costs of the old machine
D)annual cash operating costs of the replacement machine

Quizplus · Accepted Answer

The original cost of the old machine is a sunk cost because it is a past cost that cannot be recovered or changed by any future action.

Wonderful Company Is Considering Replacing a Machine That Is Presently