Harry Haney, manager of the Eastern Division of MertockCo., made the following comment to the manager of theCentral Division: It’s all well and good for you to say that I should dis-regard sunk costs when I consider whether to replace the old, inefficient equipment with new, more efficientequipment. But my performance evaluation is based onnet operating profits divided by total assets. The newequipment will increase my total asset base and lowerthe ratio of profits to assets, hurting my performance.Thus, I will not sell the old equipment.Do you agree with Haney’s statement? Why or why not?
Harry Haney, manager of the Eastern Division of MertockCo., made the following comment to the manager of theCentral Division: It’s all well and good for you to say that I should dis-regard sunk costs when I consider whether to replace the old, inefficient equipment with new, more efficientequipment. But my performance evaluation is based onnet operating profits divided by total assets. The newequipment will increase my total asset base and lowerthe ratio of profits to assets, hurting my performance.Thus, I will not sell the old equipment.Do you agree with Haney’s statement? Why or why not?
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter10: Evaluating Decentralized Operations
Section: Chapter Questions
Problem 13E: The condensed income statement for the Consumer Products Division of Tri-State Industries Inc. is as...
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Harry Haney, manager of the Eastern Division of Mertock
Co., made the following comment to the manager of the
Central Division:
It’s all well and good for you to say that I should dis-
regard sunk costs when I consider whether to replace
the old, inefficient equipment with new, more efficient
equipment. But my performance evaluation is based on
net operating profits divided by total assets. The new
equipment will increase my total asset base and lower
the ratio of profits to assets, hurting my performance.
Thus, I will not sell the old equipment.
Do you agree with Haney’s statement? Why or why not?
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