Question

The new pump will reduce variable costs by $14,000 per year over its four-year life. The costs not relevant to the decision of whether or not to replace the pump are:________.

Answer 1

Answer: D) $24,000.

Explanation:

When it comes to making decisions that will bring about a future benefit to the company, only costs to be incurred are included in the decision making analysis.

Costs that are already incurred are known as sunk costs and are not considered. The cost that it already incurred here is the old machine's book value of $24,000. It will therefore not be considered in the decision to buy a new pump.