Chapter 23, Problem 12E

To determine

Relevant and sunk costs:

Relevant costs are those costs in any managerial decision-making process that will influence the flow of capital in the future. Hence, such costs decide whether the decision is taken forward or rejected.

On the other hand, sunk costs can be referred to as the outflows of cash which have already occurred, and no further decision can be taken to recover them. Such types of costs are required to be ignored while making decisions.

Whether X Company must keep or replace its manufacturing machine and in if it is replaced which alternative must be purchased.