Savannah Motors
Savannah Motors is trying to decide whether it should keep its existing car washing machine or purchase a new one that has technological advantages (which translate into cost savings)over the existing machine.Information on each machine follows:
$\text {\underline{ Old machine} }$ &nbsp$\text {\underline{ New machine} }$
$\begin{array}{lll}
\text { Original cost } & \$ 9,000 && \$ 20,000 \
\text { Accumulated depreciation } & 5,000 && 0 \
\text { Annual cash operating costs } & 9,000& & 4,000 \
\text { Current salvage value of old machine } & 2,000 & \
\text { Salvage value in } 10 \text { years } & 500 && 1,000 \
\text { Remaininglife } & 10 \text { yrs } &&10 yrs
\end{array}$

Refer to Savannah Motors.The $20,000 cost of the new machine represents a(n)
A)sunk cost.
B)future relevant cost.
C)future irrelevant cost.
D)opportunity cost.

Question

Savannah Motors
Savannah Motors is trying to decide whether it should keep its existing car washing machine or purchase a new one that has technological advantages (which translate into cost savings)over the existing machine.Information on each machine follows:
                                                                       $\text {\underline{ Old machine} }$ &nbsp$\text {\underline{ New machine} }$
$\begin{array}{lll}
\text { Original cost } & \$ 9,000 && \$ 20,000 \
\text { Accumulated depreciation } & 5,000 && 0 \
\text { Annual cash operating costs } & 9,000& & 4,000 \
\text { Current salvage value of old machine } & 2,000 & \
\text { Salvage value in } 10 \text { years } & 500 && 1,000  \
\text { Remaininglife } & 10 \text { yrs } &&10 yrs
\end{array}$

Refer to Savannah Motors.The $20,000 cost of the new machine represents a(n)
A)sunk cost.
B)future relevant cost.
C)future irrelevant cost.
D)opportunity cost.

Quizplus · Accepted Answer

The $20,000 cost of the new machine is a future relevant cost because it is a cost that is expected to be incurred in the future and is relevant to the decision of whether to keep the old machine or purchase the new one. The best choice is to purchase the new machine because it has lower annual cash operating costs, a higher salvage value, and will provide cost savings due to its technological advantages. The salvage value of the old machine is currently only $2,000 and will decrease over time, while the salvage value of the new machine is already $1,000 and will likely maintain its value better due to its technological advantages. Additionally, the lower annual cash operating costs of the new machine will result in cost savings over time.

Savannah Motors Savannah Motors Is Trying to Decide Whether It Old machine‾ \text {\underline{ Old machine} } Old machine​

Savannah Motors
Savannah Motors Is Trying to Decide Whether It $\text {\underline{ Old machine} }$