Vaughn Manufacturing is considering the replacement of a piece of equipment with

Question

Vaughn Manufacturing is considering the replacement of a piece of equipment with a newer model. The following data has been collected:

If the old equipment is replaced now, it can be sold for $55300. Both the old equipment’s remaining useful life and the new equipment’s useful life is 5 years.

Which of the following amounts is irrelevant to the replacement decision

Old Equipment New Equipment Purchase price $205000 $336000 Accumulated depreciation 82000 - 0 - Annual operating costs 270000 213000

Explanation / Answer

Annual operating cost of old equipment, annual operating cost of new equipment, salvage value of old equipment and purchase price of new equipment all are relevant.

But old equipment book value is sunk cost so its irrelevant to the replacement decision

Purchase price and accumlated dep of old equipment is irrelevant to the replacement decision.

so answer is (205000-82000) = 123000 is irrelevant to the replacement decision

Related Questions

Navigate

• Browse (All)
• Browse V
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.