A company decided to replace an old machine with a new machine. Which of the following is considered a relevant cost?
A) The book value of the old equipment
B) Depreciation expense on the old equipment
C) The loss on the disposal of the old equipment
D) The current disposal price of the old equipment

Question

Quizplus · Accepted Answer

The current disposal price of the old equipment is considered a relevant cost because it represents the amount the company can receive by selling the old equipment, which affects the overall cost of replacing it with a new machine. The book value of the old equipment and depreciation expense are irrelevant costs because they are historical costs and do not affect the decision to replace the machine. The loss on the disposal of the old equipment is also an irrelevant cost because it represents a sunk cost that cannot be changed and does not affect future decisions.

A Company Decided to Replace an Old Machine with a New