Clancy Van Lines is considering the acquisition of two new trucks. Because of improved mileage, these vehicles are expected to have a lower operating cost per mile than the trucks the company plans to replace. Management is studying whether the firm would be better off keeping the older vehicles or going ahead with the replacement, and has identified the following decision factors to evaluate:
1. Cost and book value of the old trucks
2. Moving revenues, which are not expected to change with the acquisition
3. Operating costs of the new and old vehicles
4. New truck purchase price and related depreciation charges
5. Proceeds from sale of the old vehicles
6. The 8% return on alternative investments that Clancy will forego by tying up cash in the new trucks
7. Drivers” wages and fringe benefits
Required:
Classify the seven decision factors listed into the following categories (note: factors may be used more than once):
A. Relevant costs. 3, 4, 6
B. Opportunity costs. 6
C. Sunk costs. 1
D. Factors to be considered in the decision. 3, 4, 5, 6
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