Svahn, AB, is a Swedish manufacturer of sailing yachts. The company has assemble

Question

Svahn, AB, is a Swedish manufacturer of sailing yachts. The company has assembled the information shown below that pertains to two independent decision-making contexts.

Case A:

The company chronically has no idle capacity and the old Model B100 machine is the company’s constraint. Management is considering purchasing a Model B300 machine to use in addition to the company’s present Model B100 machine. The old Model B100 machine will continue to be used to capacity as before, with the new Model B300 machine being used to expand production. This will increase the company’s production and sales. The increase in volume will be large enough to require increases in fixed selling expenses 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 B300 machine because of the potential savings in direct materials with the new machine. The Model B100 machine would be sold. This change will have no effect on production or sales, other than some savings in direct materials costs due to less waste.

Required:

Copy the information below onto your answer sheet and place an X in the appropriate column to indicate whether each item is relevant or irrelevant to the decision context described in Case A and Case B

Sales revenue

Direct Materials

Direct Labor

VMA

Depreciattion Model B100

Book Value Model B100

Disposal value B100

Market Value B300

FMO

Variable selling expense

Fixed selling expense

General administration overhead

Explanation / Answer

CASE A CASE B Sales Revenue Variable and relevant Irrelavant Direfct Material Variable and relevant Irrelavant Direct Labour Variable and relevant Irrelavant VMA Depreciation Model B100 Irrelavant Irrelavant Book Value Model B100 Sunk cost and Irrelavant Sunk cost and Irrelavant Diposal Value B100 Irrelavant Relavant Market Value B300 Relavant Relavant FMO Variable Selling Expense Relavant Irrelavant Fixed Selling Expense Relavant Irrelavant General Admin OH Relavant Irrelavant

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

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