Past costs are irrelevant in equipment replacement decisions.

Question

Quizplus · Accepted Answer

Past costs, such as the initial purchase price, maintenance and repair costs, and depreciation, have already been incurred and cannot be recovered. Therefore, they should not be considered in equipment replacement decisions, as they cannot influence future costs and benefits of the new equipment. Instead, managers should focus on analyzing the future costs and benefits of the replacement option, including the initial investment, operating costs, maintenance and repair expenses, salvage value, and potential productivity gains or cost savings.

Past Costs Are Irrelevant in Equipment Replacement Decisions