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: $\begin{array}{lr}
\text { Expected maintenance costs of new machine } & \$ 12,000 \text { per year } \
\text { Purchase price of existing machine } & \$ 150,000 \
\text { Expected cost savings of new machine } & \$ 20,000 \text { per year } \
\text { Expected maintenance costs of existing machine } & \$ 8,000 \text { per year } \
\text { Resale value of existing machine } & \$ 35,000
\end{array}$ 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 a sunk cost, meaning it has already been incurred and cannot be recovered or changed by the decision to purchase a new machine. Therefore, it is irrelevant to the decision-making process regarding the replacement of the machine.

Maldovar Company Is Considering Purchasing a New Machine to Replace