Louna Company is considering replacing a factory machine with a new one. It has a factory machine that originally costs $80,000. It has a balance in accumulated depreciation of $40,000. It has a remaining useful life of four years. A new machine is available that costs $120,000. It is expected to have zero salvage value at the end of its four-year useful life. If the new machine is acquired, quarterly variable manufacturing costs are expected to decrease from $32,500 to $22,500 and the old machine could be sold for $15,000.

Which of the following amounts is a sunk cost and irrelevant to the replacement decision? *

$120,000

$15,000

$40,000

None of the above

The total cost of retaining the old equipment: *

$520,000

$130,000

$40,000

None of the above

The total cost of replacing the old equipment: *

$120,000

$195,000

$465,000

None of the above

The net increase (decrease) in the net income of replacing the old equipment is: *

$(55,000)

$55,000

$(40,000)

None of the above

Answer rating: 100% (QA)

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