Maldovar Company is considering purchasing a new machine to replace a machine purchased one year ago that is not achieving the expected results. The following information is available: Which of these items is IRRELEVANT?
A) Expected maintenance costs of new machine
B) Expected maintenance costs of existing machine
C) Purchase cost of existing machine
D) Expected resale value of existing machine

Question

Maldovar Company is considering purchasing a new machine to replace a machine purchased one year ago that is not achieving the expected results. The following information is available:  Which of these items is IRRELEVANT?
A) Expected maintenance costs of new machine 
B) Expected maintenance costs of existing machine 
C) Purchase cost of existing machine 
D) Expected resale value of existing machine

Quizplus · Accepted Answer

The purchase cost of the existing machine is irrelevant because the decision to replace the machine has already been made, and the cost of the existing machine is a sunk cost. The relevant costs are the expected maintenance costs of the new machine and the expected resale value of the existing machine, which will both impact the overall cost of the decision to replace the machine. The expected maintenance costs of the existing machine are also relevant as a point of comparison, but they are not irrelevant.

Maldovar Company Is Considering Purchasing a New Machine to Replace