Smith Industries is considering replacing a machine that is presently used in its production process. The following information is available: For a machine replacement decision which of the information provided in the table is a sunk cost?

Question

Smith Industries is considering replacing a machine that is presently used in its production process. The following information is available:  For a machine replacement decision which of the information provided in the table is a sunk cost?

Quizplus · Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered. The original cost of the old machine is a sunk cost because it has already been paid for and cannot be recovered. The decision to replace the machine should be based on future costs and benefits, not on past costs. The current disposal value of the old machine, current annual operating cost of the old machine, and price of the new machine are all relevant costs that should be considered in the decision-making process.

Smith Industries Is Considering Replacing a Machine That Is Presently