Svahn, AB, is a Swedish manufacturer of sailing yachts. The company has assembled the information shown below that pertains to twoindependent decision-making contexts.Case A:The company chronically has no idle capacity and the old Model B100 machine is the company's constraint. Management isconsidering purchasing a Model B300 machine to use in addition to the company's present Model B100 machine. The old Model B100machine will continue to be used to capacity as before, with the new Model B300 machine being used to expand production. This willincrease the company's production and sales. The increase in volume will be large enough to require increases in fixed sellingexpenses and in general administrative overhead, but not in the fixed manufacturing overhead.Case B:The old Model B100 machine is not the company's constraint, but management is considering replacing it with a new Model B300machine because of the potential savings in direct materials with the new machine. The Model B100 machine would be sold. Thischange will have no effect on production or sales, other than some savings in direct materials costs due to less waste.Required:Based on the information provided above indicate in the appropriate column whether each item is relevant or irrelevant to the decisioncontext described in Case A and Case B.Itema. Sales revenueb. Direct materialsc. Direct labord. Variable manufacturing overheade. Depreciation Model B100 machinef. Book value-Model B100 machineg. Disposal value-Model B100 machineh. Market value-Model B300 machine (cost)i. Fixed manufacturing overhead (general)Variable selling expensek. Fixed selling expenseI. General administrative overheadCase ACase B

Relevant CostIn Management accounting the term relevant cost really matters. The relevant cost is…

Answered: The old Model B100 machine is not the…

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter12: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 2CDQ

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Certain production equipment used by Dayton Mechanical has become obsolete relative to current technology. The company is considering whether it should keep or replace its existing equipment. To aid in this decision, the company’s controller gathered the following data: (See attached) c. What is the total dollar amount of all relevant costs to the equipment replacement decision. $______ d. What is the total dollar amount of the opportunity costs associated with the alternative of keeping the old equipment? $______
“That old equipment for producing carburetors is worn out,” said Bill Seebach, president of Hondrich Company. “We need to make a decision quickly.” The company is trying to decide whether it should rent new equipment and continue to make its carburetors internally or whether it should discontinue production of its carburetors and purchase them from an outside supplier. The alternatives follow: Alternative 1: Rent new equipment for producing the carburetors for $189,000 per year. Alternative 2: Purchase carburetors from an outside supplier for $20.25 each. Hondrich Company’s costs per unit of producing the carburetors internally (with the old equipment) are given below. These costs are based on a current activity level of 30,000 units per year: Direct materials $ 5.70 Direct labour 8.00 Variable overhead 2.40 Fixed overhead ($3.15 supervision, $1.80 depreciation, and $4.00 general company overhead) 8.95 Total cost per…
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