Deadwood Company is considering replacing a machine that is presently used in the production of a product.In the replacement decision,________ is a sunk cost.
A)annual cash operating costs of old machine
B)annual cash operating costs of new machine
C)disposal value of old machine now
D)cost of old machine

Question

Quizplus · Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered. The cost of the old machine (D) is a sunk cost because it has already been incurred and cannot be recovered. The annual cash operating costs of the old machine (A) and disposal value of the old machine now (C) are also costs that have already been incurred and cannot be recovered, but they are not relevant in the decision-making process for the replacement of the machine. The annual cash operating costs of the new machine (B) are future costs and are relevant in the decision-making process.

Deadwood Company Is Considering Replacing a Machine That Is Presently