Smith Industries is considering replacing a machine that is presently used in its production process. The following information is available: $\begin{array}{|l|r|r|}
\hline & \text { Old Machine } & \begin{array} { l }
\text { Replacement } \
\text { Machine }
\end{array} \
\hline \text { Original cost } & \$ 45,000 & \$ 35,000 \
\hline \text { Remaining useful life in years } & 5 & 5 \
\hline \text { Current age in years } & 5 & 0 \
\hline \text { Book value } & \$ 25,000 & \
\hline \text { Current disposal value in cash } & \$ 8,000 & \
\hline \text { Future disposal value in cash (in 5 years) } & \$ 0 & \$ 0 \
\hline \text { Annual cash operating costs } & \$ 7,000 & \$ 4,000 \
\hline
\end{array}$ 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: $\begin{array}{|l|r|r|}
\hline & \text { Old Machine } & \begin{array} { l } 
\text { Replacement } \
\text { Machine }
\end{array} \
\hline \text { Original cost } & \$ 45,000 & \$ 35,000 \
\hline \text { Remaining useful life in years } & 5 & 5 \
\hline \text { Current age in years } & 5 & 0 \
\hline \text { Book value } & \$ 25,000 & \
\hline \text { Current disposal value in cash } & \$ 8,000 & \
\hline \text { Future disposal value in cash (in 5 years) } & \$ 0 & \$ 0 \
\hline \text { Annual cash operating costs } & \$ 7,000 & \$ 4,000 \
\hline
\end{array}$ 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 is a sunk cost and cannot be recovered. The other information provided in the table is relevant as it pertains to the costs associated with the old machine and the potential costs associated with the purchase and operation of the new machine.

Smith Industries Is Considering Replacing a Machine That Is Presently