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?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter9: Responsibility Accounting And Decentralization

Section: Chapter Questions

Problem 6EA: As manager of department B in MarIeys Manufacturing, based on the costs you identified in the...

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As manager of department B in MarIeys Manufacturing, based on the costs you identified in the previous exercise for further research, how does this impact the financial performance of your department, and what might be some questions you want to ask or solutions you might propose to Marleys management?
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