Learning Objective 25-1
1) If a business is considering buying a new vehicle, the cost of insurance on the new vehicle is the information that is relevant to the business decision.
2) When considering whether to have a new roof installed on a building, the money spent previously on roof repairs to the old roof is the information that is relevant to the business decision.
3) When a business is considering whether to replace old equipment with newer equipment, the cost of operating the old equipment, compared to the cost of operating the new equipment, is relevant information to the business decision.
4) When a business is considering whether to replace old equipment with newer equipment, the replacement cost of the old equipment compared to the cost of the new equipment, is relevant information to the business decision.
5) A depreciable asset's original cost is relevant when considering whether to replace the depreciable asset.
6) A sunk cost is a cost that was incurred in the past and cannot be changed regardless of which future action is taken.
7) Managers' decisions are based primarily on quantitative data because the qualitative factors are not usually relevant to the decision making process.
8) Fixed costs that do not differ between two alternatives are ________.
A) relevant to the decision
B) considered opportunity costs
C) considered irrelevant to the decision
D) important only if they represent a material dollar amount.
9) When replacing an old asset with a new one, the original purchase price of the old asset represents ________.
A) relevant cost
B) differential costs
C) opportunity cost
D) sunk cost
10) A company is planning to replace an old machine with a new one. Which of the following is a sunk cost in this decision?
A) cost of the new machine
B) selling price of the old machine
C) future maintenance costs of the old machine
D) original cost of the old machine