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This video tutorial covers incremental analysis for deciding whether to replace or retain equipment. It emphasizes comparing costs associated with both alternatives, primarily focusing on variable manufacturing costs and the cost of new equipment. The book value of the old machine is highlighted as a sunk cost, meaning it does not influence the current decision-making process. Book value refers to the equipment’s original cost minus accumulated depreciation. If the equipment is discarded without trade-in value, the book value results in a loss on the income statement. Ultimately, both options affect the income statement similarly, either through depreciation or a loss.
