Joseph Company is considering replacing an existing piece of machinery with newer technology.In deciding whether to replace the existing machinery,management should consider which costs as relevant?

Question

Quizplus · Accepted Answer

Management should consider future costs that will be different under the two alternatives. This will help them make an informed decision about whether the new machinery is worth the investment. Sunk costs and historical costs are not relevant in this decision making process because they are not related to the future costs of the new machinery. Future costs that will be classified as fixed rather than variable may also be relevant, but it depends on the specific circumstances and should be evaluated on a case-by-case basis.

Joseph Company Is Considering Replacing an Existing Piece of Machinery