What costs should decision maker consider as sunk costs

Assignment Help Operation Management
Reference no: EM131438239

McKinnon Company’s plant manager is considering buying a new machine to replace an old grinding machine or overhauling the old one to ensure compliance with the plant’s high-quality standards. The following data are available:

Old Grinding Machine

Original cost                            $50,000

Accumulated Depreciation      40,000

Annual operating costs                         18,000

Current salvage value                  4,000

Salvage value at end of 5 years                       0

New Grinding Machine

Cost                                         $70,000

Annual operating costs                        13,000

Salvage value at end of 5 years                   500

Overhaul of Old Grinding Machine

Cost of overhaul                      $25,000

Annual operating costs after

Overhaul                                 14,000

Salvage value at end of 5 years                  200

a) What costs should the decision maker consider as sunk costs?

b) List all relevant costs and when they are incurred.

c) What should the plant manager do? Why?

Reference no: EM131438239

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