Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed


Irrelevance of past costs and equipment-replacement decisions



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Irrelevance of past costs and equipment-replacement decisions
The concept of sunk costs also applies to students personal lives. People who recognise the irrelevance of sunk costs tend to be more productive. For example, research has shown that students who start again on weak course assignments and academic staff who abandon research


Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012 that is not progressing perform better than their peers who follow traditional advice to stick with it Many managers like the old adage, Use it up, wear it out, make it door do without They think that past costs are relevant. This problem often occurs in the context of rapid technology changes. Managers argue that they need to recoup their investment in the old technology before investing in anew technology. However, customers may not continue to buy products based on old technology. Managers should compare the expected net inflows from the new technology with the expected net inflows from the old technology.

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