Question

A company is deciding on whether to replace some old equipment with new equipment. Which of the following is not a relevant cost for incremental analysis? Annual operating cost of the new equipment. Cost of the new equipment. Accumulated depreciation on the old equipment. Annual operating cost of the old equipment.

Answer 1

The correct answer is the accumulated depreciation on the old asset

Step-by-step explanation:

Incremental analysis relates to future costs not costs incurred in the past hence the accumulated depreciation is a sunk cost not relevant as it is not a cost to be incurred in the future.

The annual operating costs of the new and old equipment are relevant to the decision at hand as either of them would be incurred depending on the final decision taken.

The cost of the new equipment is also relevant for the analysis is also future and relevant cost.