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In a replacement analysis, irrelevant past costs are known as sunk cost. True or false

In a replacement analysis, irrelevant past costs are known as sunk cost.

True or false

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Answer #1

Answer- The above statement is TRUE. Sunk costs refers to the costs that a business incurs and it remains fixed and doesn’t change or variate in the due course of time. Due to sunk costs being fixed in nature, it is not considered by the decision makers of the business. And irrelevant costs are also not included in the business making decisions as they as they may be bound to incur. An example would be of depreciation as it is incurred due to purchase of an asset and will be incurred in future as well, so considering depreciation would be irrelevant.

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