Relevant cost of machinery
In this lesson, you'll learn how to identify and calculate the relevant cost of machinery for decision-making purposes. You'll discover why historical purchase prices and accounting book values don't matter, and instead focus on future cash flows—like maintenance costs, resale value changes, and incremental
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In this lesson
- 0:00 Relevant cost of machinery explained
- 0:27 When machinery costs are relevant
- 0:53 Machinery investment decision worked example
- 1:40 Identifying non-relevant costs
- 2:08 Calculating net cash flows
- 2:54 Comparing alternatives and making decisions
About this lesson
expenses—that directly affect your decision. Through a worked example comparing whether to update existing machinery or sell it, you'll see how to apply the relevant cost framework to real business scenarios, a key skill for Performance Management and Strategic Business Leader papers.
Duration: 3m
Transcript
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