Smith Industries is considering replacing a machine that is presently used in its production process. Which of the following is irrelevant to the replacement decision?
$$\begin{array} { | l | r | r | }
\hline & \text { Old Machine } & \begin{array} { l }
\text { Replacement } \
\text { Machine }
\end{array} \
\hline \text { Original cost } & \$ 70,000 & \$ 45,000 \
\hline \text { Remaining useful life in years } & 5 & 5 \
\hline \text { Current age in years } & 5 & 0\
\hline \text { Book value } & \$ 33,000 & \
\hline\text { Current disposal value in cash }&\$10,000\
\hline \text { Furrent disposal value in cash } & \$ 0 & \$ 0 \
\hline \text { Annual cash operating costs } & \$ 7,000 & \$ 4,000 \
\hline
\end{array}$$ 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. Which of the following is irrelevant to the replacement decision?
$$\begin{array} { | l | r | r | } 
\hline & \text { Old Machine } & \begin{array} { l } 
\text { Replacement } \
\text { Machine }
\end{array} \
\hline \text { Original cost } & \$ 70,000 & \$ 45,000 \
\hline \text { Remaining useful life in years } & 5 & 5 \
\hline \text { Current age in years } & 5 & 0\
\hline \text { Book value } & \$ 33,000 & \
\hline\text { Current disposal value in cash }&\$10,000\
\hline \text { Furrent disposal value in cash } & \$ 0 & \$ 0 \
\hline \text { Annual cash operating costs } & \$ 7,000 & \$ 4,000 \
\hline
\end{array}$$ 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 irrelevant to the replacement decision as it is a sunk cost and cannot be recovered. The relevant factors are the sales price of the new machine, the current disposal value of the old machine, and the annual cash operating costs.

Smith Industries Is Considering Replacing a Machine That Is Presently