6) A company decided to replace an old machine with a new machine. Which of the following is considered a relevant cost?
A) the book value of the old equipment
B) depreciation expense on the old equipment
C) the loss on the disposal of the old equipment
D) the current disposal price of the old equipment
7) What role does a trade-in allowance on old equipment play in a decision to retain or replace equipment?
A) it is relevant since it increases the cost of the new equipment
B) it is not relevant since it reduces the cost of the old equipment
C) it is not relevant to the decision since it does not impact the cost of the new equipment
D) it is relevant since it reduces the cost of the new equipment
Answer the following questions using the information below:
Pizza For Everyone is considering replacing its existing delivery van with a new one. The new van can offer considerable savings in operating costs. Information about the existing van and the new van follow:
Existing vanNew van
Original cost$50,000$90,000
Annual operating cost$ 17,500$ 10,000
Accumulated depreciation$ 30,000?
Current salvage value of the existing van$ 22,500?
Remaining life10 years10 years
Salvage value in 10 years$ 0$ 0
Annual depreciation$ 2,000$ 9,000
8) Sunk costs include:
A) the original cost of the existing van
B) the original cost of the new van
C) the current salvage value of the existing van
D) the annual operating cost of the new van
9) Relevant costs for this decision include:
A) the original cost of the existing van
B) accumulated depreciation
C) the current salvage value
D) the salvage value in 10 years
10) If Pizza For Everyone replaces the existing delivery van with the new one, over the next 10 years operating income will:
A) decrease by $90,000
B) increase by $75,000
C) decrease by $75,000
D) None of these answers is correct.
Answer the following questions using the information below:
Victoria, Inc., is considering replacing a machine. The following data are available:
Replacement
Old MachineMachine
Original cost$90,000$70,000
Useful life in years105
Current age in years50
Book value$50,000?
Disposal value now$16,000?
Disposal value in 5 years00
Annual cash operating costs$14,000$8,000
11) Which of the data provided in the table is a sunk cost?
A) the annual cash operating costs of the old machine
B) the annual cash operating costs of the replacement machine
C) the disposal value of the old machine
D) the original cost of the old machine
12) For the decision to keep the old machine, the relevant costs of keeping the old machine total:
A) $120,000
B) $70,000
C) $94,000
D) $144,000
13) The difference between keeping the old machine and replacing the old machine is:
A) $74,000 in favor of keeping the old machine
B) $24,000 in favor of keeping the old machine
C) $74,000 in favor of replacing the old machine
D) $24,000 in favor of replacing the old machine
14) The difference between the original cost of an asset and the accumulated depreciation is known as the:
A) historical cost
B) market value
C) book value
D) depreciable cost
15) When replacing an old machine with a new machine, the purchase price of the old machine is a relevant cost.
