A company decided to replace an old machine with a new machine. Which of the following is considered a relevant cost?
A) the book value of the old equipment
B) the depreciation expense on the old equipment
C) the loss on the disposal of the old equipment
D) the setup cost of the new equipment

Question

Quizplus · Accepted Answer

The setup cost of the new equipment is a relevant cost as it is a cost that will be incurred as a result of the decision to replace the old machine with a new one. The book value of the old equipment, the depreciation expense on the old equipment, and the loss on disposal of the old equipment are all sunk costs and therefore not relevant for this decision.

A Company Decided to Replace an Old Machine with a New