The book value of existing equipment is a historical cost and not necessary for deciding equipment replacement, thus it can be considered as ___________?
Correct answer: B. sunk cost
- A. operating cost
- B. sunk cost
- C. in-house cost
- D. out-house cost
Explanation
The existing equipment's book value is a sunk cost because it arose from a past purchase and cannot be recovered or changed by the replacement decision. Only future avoidable costs and benefits should influence that choice.
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About Cost Accounting
Cost accounting measures and analyses the cost of producing goods or providing services for planning, control and pricing decisions. It covers direct and indirect costs, fixed and variable costs, job and process costing, break-even analysis, marginal costing, overhead allocation, and the difference between product cost and period cost.
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