Sunk costs Ideal Company's plant manager is considering buying a new grind¬ ing 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:

REQUIRED

(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?

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OLD GRINDING MACHINE Original cost $50,000 Accumulated depreciation 40,000 Annual operating costs 18,000 Current salvage value 4,000 Salvage value at the end of 5 years 0 NEW GRINDING MACHINE Cost Annual operating costs Salvage value at the end of 5 years $70,000 13,000 0 OVERHAUL OF OLD GRINDING MACHINE Cost of overhaul $25,000 Annual operating costs after overhaul 14,000 Salvage value at the end of 5 years 0