Smith Industries is considering replacing a machine that is presently used in its production process.The following information is available: $$\begin{array} { | l | l | l | }
\hline & \text { Old Machine } & \text { Replacement Machine } \
\hline \text { Oripinal cost } & \$ 45,000 & \$ 35,000 \
\hline \text { Remaining useful life in years } & 5 & 5 \
\hline \text { Curent age in years } & 5 & 0 \
\hline \text { Bogk value } & \$ 25,000 & \
\hline \text { Current disposal value in cash } & \$ 8,000 & \
\hline \text { Future disposal value in cash (in 5 years) } & \$ 0 & \$ 00 \
\hline \text { Arnual cash operating costs } & \$ 7,000 & \$ 4,000 \
\hline
\end{array}$$ Which of the information provided in the table is irrelevant to the replacement decision?

Question

Smith Industries is considering replacing a machine that is presently used in its production process.The following information is available: $$\begin{array} { | l | l | l | } 
\hline & \text { Old Machine } & \text { Replacement Machine } \
\hline \text { Oripinal cost } & \$ 45,000 & \$ 35,000 \
\hline \text { Remaining useful life in years } & 5 & 5 \
\hline \text { Curent age in years } & 5 & 0 \
\hline \text { Bogk value } & \$ 25,000 & \
\hline \text { Current disposal value in cash } & \$ 8,000 & \
\hline \text { Future disposal value in cash (in 5 years) } & \$ 0 & \$ 00 \
\hline \text { Arnual cash operating costs } & \$ 7,000 & \$ 4,000 \
\hline
\end{array}$$ Which of the information provided in the table is irrelevant to the replacement decision?

Quizplus · Accepted Answer

The original cost of the old machine is not relevant to the replacement decision as it reflects the price paid for the machine at an earlier point in time, and does not provide information on the current costs and benefits of keeping or replacing the machine. The annual operating cost and the current disposal value are relevant factors as they provide information on the ongoing costs and benefits of continuing to use the old machine or replacing it with a new one. Therefore, option B is the best choice as it is not relevant to the replacement decision.

Smith Industries Is Considering Replacing a Machine That Is Presently