Question

A company is deciding whether to purchase production equipment that can produce units more quickly than the current equipment. Which of the following costs would be relevant to its​decision?
A.

The original purchase price of the current machinery

B.

The cost of raw materials

C.

The accumulative repairs costs of the current machinery over the years

D.

The additional labor required to run the new equipment

Answer 1

Answer:

D.  The additional labor required to run the new equipment

Explanation:

Analysis of each option :-

A) It is irrelevant as it was fixed cost or sunk cost incurred at the time of purchase.

B) Cost of raw materials is common in both the machines, as the criteria for replacement is time factor

C) Accumulative repairs cost for the current machinery over year was sunk cost or fixed cost and it is Irrelevant.

D) Additional labor required to run the new equipment is - Relevant as it was the present issue of producing in quick time than using older equipment with a replacement of current equipment.

So answer is Option D)