Posted: July 24th, 2016

What are the relevant and irrelevant costs.

Doulas County’s Photocopying

Equipment Replacement

Old Equipment Proposed Replacement Equipment
Useful life in years 5 3
Current age in years 2 0
Useful life remaining, in year 3 3
Original cost $25,000 $15,000
Accumulated amortization $10,000 0
Book Value $15,000 Not acquired yet
Disposal value(in cash) now $6,000 Not acquired yet
Disposal value in two years 0 0
Annual cash operating costs for power maintenance, toner, and supplies $14,000 $9,000

Assume the new equipment will have a three year life. Ignore taxes.
1. What are the relevant and irrelevant costs.
2. Would a list of only relevant costs be more clear than the list from #1?
3. Prepare an analysis to support your choice of alternatives.

Doulas County’s Photocopying

Equipment Replacement

Old Equipment Proposed Replacement Equipment
Useful life in years 5 3
Current age in years 2 0
Useful life remaining, in year 3 3
Original cost $25,000 $15,000
Accumulated amortization $10,000 0
Book Value $15,000 Not acquired yet
Disposal value(in cash) now $6,000 Not acquired yet
Disposal value in two years 0 0
Annual cash operating costs for power maintenance, toner, and supplies $14,000 $9,000

Assume the new equipment will have a three year life. Ignore taxes.
1. What are the relevant and irrelevant costs.
2. Would a list of only relevant costs be more clear than the list from #1?
3. Prepare an analysis to support your choice of alternatives.