In a Decision Concerning Replacing Old Equipment with New Equipment

question 84

True/False

In a decision concerning replacing old equipment with new equipment the book value of the old equipment can be considered a sunk cost.

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Definitions:

Pretax Income

Income earned by a company before taxes have been deducted.

Variable Costs

Expenses that vary directly with the level of production or sales volume, such as raw materials and sales commissions.

Fixed Costs

Financial obligations such as rent, salaries, and insurance that do not fluctuate with changes in production or sales levels.

Contribution Margin

The amount remaining from sales revenue after variable costs have been deducted, used to cover fixed costs and generate profit.