ch10 6) Granfield Company has a piece of manufacturing equipment with a book val

Question

ch10

6) Granfield Company has a piece of manufacturing equipment with a book value of $40,000 and a remaining useful life of four years. At the end of the four years the equipment will have a zero salvage value. The market value of the equipment is currently $22,000. Granfield can purchase a new machine for $120,000 and receive $22,000 in return for trading in its old machine. The new machine will reduce variable manufacturing costs by $19,000 per year over the four-year life of the new machine. The total increase or decrease in net income by replacing the current machine with the new machine (ignoring the time value of money) is:

$22,000 decrease

$76,000 increase

$18,000 decrease

$52,000 increase

$22,000 increase

7) A company is considering a new project that will cost $19,000. This project would result in additional annual revenues of $6,000 for the next 5 years. The $19,000 cost is an example of a(n):

Sunk cost.

Fixed cost.

Incremental cost.

Uncontrollable cost.

Opportunity cost.

8) Chang Industries has 2,000 defective units of product that have already cost $14 each to produce. A salvage company will purchase the defective units as they are for $5 each. Chang's production manager reports that the defects can be corrected for $6 per unit, enabling them to be sold at their regular market price of $21. The incremental income or loss on reworking the units is:

$20,000 loss.

$20,000 income.

$12,000 loss.

$32,000 income.

$30,000 income.

9) An opportunity cost:

Is an unavoidable cost because it remains the same regardless of the alternative chosen.

Requires a current outlay of cash.

Results from past managerial decisions.

Is the potential benefit lost by choosing a specific alternative course of action among two or more.

Is irrelevant in decision making because it occurred in the past.

10) What decision rule should be followed when deciding if a business segment should be eliminated?

Segments generating a net loss should always be eliminated.

Segments with revenues that are more than avoidable expenses should be considered for elimination.

Segments with revenues that are more than unavoidable expenses should be considered for elimination.

Segments with revenues that are less than avoidable expenses should be considered for elimination.

Segments with revenues that are less than unavoidable expenses should be considered for elimination.

Explanation / Answer

6 Total increase or decrease in net income = (19000*4)-(120000-22000)= $22000 decrease 7 The $19,000 cost is an example of a(n) Incremental cost. 8 The incremental income or loss = 2000*(21-6-5)= $20000 income. 9 An opportunity cost Is the potential benefit lost by choosing a specific alternative course of action among two or more. 10 Segments with revenues that are less than avoidable expenses should be considered for elimination.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.