deciding replace equipment overriding

When deciding whether or not to replace old equipment with new equipment, the overriding

The statement is False.

Explanation-

The book value of old equipment is irrelevant to the decision-making process because it is a sunk cost. The amount is already being incurred by the business and has no further outflow of the funds. The value of the new equipment is relevant in the decision-making process.

In the case old equipment has any salvage value or resale value then the same is considered in the decision-making process.

131.What amount would be considered sunk costs?a.$2,400b.$9,000c.$17,800d.$20,200Ans: C, LO: 4, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC:Problem Solving, IMA: Cost Management7 - 28

132.When deciding whether or not to replace old equipment with new equipment, theoverriding consideration is the

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Solving, IMA: Business Economics133.In an equipment replacement decision, the cost of the old equipment is a(n)

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Use the following information for questions 134–136.Chung Inc. is considering the replacement of a piece of equipment with a newer model. Thefollowing data has been collected:Old EquipmentNew EquipmentPurchase price$225,000$375,000Accumulated depreciation90,000- 0 -Annual operating costs300,000240,000If the old equipment is replaced now, it can be sold for $60,000. Both the old equipment’sremaining useful life and the new equipment’s useful life is 5 years.

142.A company is deciding whether or not to replace some old equipment with newequipment. Which of the following isnotconsidered in the incremental analysis?a.Annual operating cost of the new equipmentb.Annual operating cost of the old equipmentc.Net cost of the new equipmentd.Book value of the old equipment7-26

143.A company is considering replacing old equipment with new equipment. Which of thefollowing is a relevant cost for incremental analysis?

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144.What role does a trade-in allowance on old equipment play in a decision to retain orreplace equipment?

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145.A company decided to replace an old machine with a new machine. Which of the followingis considered a relevant cost?

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146.Diversified Machines has four product lines, one of which reflects the following results:Sales$330,000Variable expenses180,000Contribution margin150,000Fixed expenses180,000Net loss$(30,000)If this product line is eliminated, 40% of the fixed expenses can be eliminated and theother 60% will be allocated to other product lines. If management decides to eliminate thisproduct line, the company's net income willa.increase by $30,000.b.decrease by $78,000.c.decrease by $48,000.d.increase by $72,000.Sales$330,000Variable expenses180,000Contribution margin150,000

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Which of the following is relevant when deciding to replace old equipment with new equipment?

Managerial Accounting The book value of old equipment is a relevant cost in a decision to replace that equipment.

Which of the following costs is not relevant when deciding whether to keep or replace a piece of equipment?

Sunk costs (past costs) or committed costs are not relevant. Sunk, or past, costs are monies already spent or money that is already contracted to be spent. A decision on whether or not a new endeavour is started will have no effect on this cash flow, so sunk costs cannot be relevant.

Why is the book value of old equipment irrelevant to the equipment replacement decision?

In the above question, the cost of old equipment is a sunk cost as it has been already incurred and can't be recovered. Sunk costs are also known as historical costs. In an equipment replacement decision, these costs are irrelevant, and hence are not part of the decision-making process.

What role does a trade in allowance on old?

Trade-in allowance The allowance is the amount by which the dealer will reduce the cost of your new car as a result of trading in your old one. This is like a credit from the sale of your existing car that is put toward the purchase of your new vehicle.

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