-1. , Identifying Relevant Costs and Revenues The Village of Bomont operates a p

Question

-1. , Identifying Relevant Costs and Revenues The Village of Bomont operates a power plant on a river that flows through town. The village uses some of this generated electricity to operate a water treatment plant and sells the excess electricity to a local ility. The city council is evaluating two alternative proposals: . Proposal A calls for replacing the generators used in the plant with more efficient generators that Powt tt will produce more electricity and have lower operating costs. The salvage value of the old genera- tors is higher than their removal cost. Proposal B calls for raising the level of the dam to retain more water for generating power and . increasing the force of water flowing through the dam. This will significantly increase the amount of electricity generated by the plant. Operating costs will not be affected. Required Presented are a number of cost and revenue items. Indicate in the appropriate columns whether each item is relevant or irrelevant to proposals A and B. Proposal A Proposal B 1. Cost of new furniture for the city manager's office 2. Cost of old generators 3. Cost of new generators 4. Operating cost of old generators 5. Operating cost of new generators 6. The police chief's salary 7. Depreciation on old generators 8. Salvage value of old generators 9. Removal cost of old generators 10. Cost of raising dam I. Maintenance costs of water plant 12. Revenues from sale of electricity

Explanation / Answer

RELEVANT / IRRELEVANT COST: Proposal A Proposal B 1. Cost of new furniture for City manager office Irrelevant Irrelevant 2. Cost of old generators Irrelevant Irrelevant 3. Cost of new generators Relevant Irrelevant 4. Operating cost of Old generators Relevant Irrelevant 5. Operating cost of new generators Relevant Irrelevant 6. Police chief salary Irrelevant Irrelevant 7. Depreciation of old generators Irrelevant Irrelevant 8. salvage value of old generators Relevant Irrelevant 9. Removal cocst of old generators Relevant Irrelevant 10.Cost of raising dam Irrelevant Relevant 11. Maintenance cost of water plant Irrelevant Irrelevant 12.Revenue from sale of electricity Relevant Relevant

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