When deciding to purchase a new cutting machine or continue using an existing machine, the following costs are all relevant except the:
A) Original cost of the old machine.
B) Cost (purchase price) of the new machine.
C) Disposal (salvage) value of the old (existing) machine.
D) Annual savings in operating costs if the new machine is purchased.
E) Maintenance costs, if expected to be less under the new machine.

Question

Quizplus · Accepted Answer

The original cost of the old machine is not relevant because it is a sunk cost and cannot be changed by the decision to purchase a new machine or not. The other costs listed are relevant and should be considered when making the decision.

When Deciding to Purchase a New Cutting Machine or Continue