The 2 computational problems. 46 Copyright© 2014 Pearson Education, Inc. 8) Bens
ID: 2553947 • Letter: T
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The 2 computational problems.
46 Copyright© 2014 Pearson Education, Inc. 8) Benson Company is considering the replacement of a machine that is presently used in production. The following data are available: Original cost Useful life in years Current age in years 8ook value Disposal value now Disposal value in 5 years Annual cash operating costs $57,000 12 7,000 $4,000 Adding all five years together, the total relevant costs to consider if the new machine is purchased is A) $12,000 B) $27,000 C) $47,000 D) $55,000 Answer C LO: 6-6 AACSB: Analytic skills Leaming Outcome: Distinguish between relevant and irrelevant costs, Use incremental analysis to make short-term decisions presently used in production. 15) Sunbury Company is considering the replacement of a machine that is The following data are available: $35,000 Original cost Useful life in years Current age in years $60,000 10 $25,000 $8,000 Book value Disposal value now Disposal value in 5 years Annual cash operating costs $12,000 $4,000 Adding al five years together, the total relevant costs to consider if the old machine is kapt are A) $30,000 B) $50,000 C) $52,000 D) $60,000 Answer: o Diff. 2 LO: 6-6 AACSB: Analytic skils Leaming Outcome: Distinguish between relevant and irrelevant costs, Use incremental analyais to make short-term decisions 6) The disposal value of old equipment is relevant in equipment replacement decisions Answer: TRUE Diff: 2 LO: 6-6 AACSB: Reflective thinking skills Leaming Outome: Distinguish betweon relevant and irmolevant costs, Use incremental analysis to make short-term decisions 17) Sunk cost is used to describe a historical cost or past cost Answer: TRUE LO: 6-6 AACSB: Reflective thinking skills Leaming Outcome: Distinguish between relevant and irolavant costs, Use incremental analysis to make short-term decisionsExplanation / Answer
8)Net Initial cost: 35000 purchase cost -8000Disposal value of old machine
= 27000
Total annual cost :4000*5=20000
Total relevant cost : 27000+20000= 47000
correct option is "C"
15)Total relevant cost for old machine : 12000*5 = 60000
correct option is D"
16)The Disposal value of old equipment is relevant as it result in incremental cash flow
17)The statement is true .
All cost incurred in past is sunk cost and is irrelevant
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