Question

blue manufacturing company is trying to decide whether to trade in equipment used in its manufacturing process for a mewer model. the new equipment will save money because it will be more efficient to use. Indicate if the following items are relevant or irrelevant to this decision.

item
the price of the new equipment

the price paid for the old equipment

the trade in value of the old equipment

the repair cost that will be incurred if the old equipment is kept

the equipment cost savings of the new equipment

the cost that have been incurred on the old equipment

Answer 1

Sunk cost : cost which are incurred in past and doesn't play any role in future decision making are called sunk cost.

Note : remarks given in solution is only for guidance purpose to students Question can also be answered by taking sunk cost as base.