When deciding to lease a new cutting machine or continue using the old machine, the following costs are relevant EXCEPT the:
A)$50,000 cost of the old machine
B)$20,000 cost of the new machine
C)$10,000 selling price of the old machine
D)$3,000 annual savings in operating costs if the new machine is purchased

Question

Quizplus · Accepted Answer

The cost of the old machine is a sunk cost and is not relevant to the decision of whether to lease a new machine or continue using the old machine. The relevant costs are the cost of the new machine, the selling price of the old machine, and the annual savings in operating costs if the new machine is purchased. Therefore, choices B, C, and D are all relevant in the decision-making process.

When Deciding to Lease a New Cutting Machine or Continue