Question : 17) Which of the following factors would be considered irrelevant : 1185982

17) Which of the following factors would be considered irrelevant when evaluating equipment replacement decisions?

A) the book value of the old machine

B) manufacturing costs

C) overhead costs

D) product production costs

E) useful life of new equipment

18) Ignoring tax consequences, how should the gain or loss on disposal of an old machine be treated in an equipment replacement decision?

A) used to defray installation costs of the new machine

B) deducted from the accumulated amortization

C) deducted from the cost of the new machine

D) added to the accumulated amortization (or deducted from the cost) of the old machine

E) It is irrelevant.

19) Past costs that are unavoidable and unchangeable are known as

A) fixed overhead costs.

B) operating costs.

C) product production costs.

D) sunk costs.

E) constraining costs.

20) Electrical Engineering Equipment Ltd. purchased a machine for $100,000; current accumulated amortization totals $40,000. Management is contemplating the purchase of a new machine for $120,000. Current disposal of the old machine would cost $65,000.

What is the correct category for each item?

A) Irrelevant: $120,000 of new machine, $40,000 accumulated amortization;

Relevant: $100,000 cost of old machine, $65,000 of disposal of old machine, $5,000 gain on sale

B) Irrelevant: $100,000 cost of old machine, $40,000 accumulated amortization;

Relevant: $120,000 cost of new machine, $5,000 gain on sale, $65,000 disposal of old machine

C) Irrelevant: $120,000 cost of new machine, $65,000 disposal of old machine.

Relevant: $100,000 cost of old machine, $60,000 book value of old machine, $5,000 gain on sale

D) Irrelevant: $100,000 cost of old machine, $60,000 book value of old machine;

Relevant: $120,000 cost of new machine, $65,000 disposal of old machine, $5,000 gain on sale

E) Irrelevant: $100,000 cost of old machine, $40,000 accumulated amortization, $5,000 gain on sale; Relevant: $120,000 cost of new machine, $65,000 disposal of old machine

21) For make-or-buy decisions, relevant costs include

A) direct material costs plus direct labour costs.

B) incremental costs plus opportunity costs.

C) differential costs plus sunk costs.

D) incremental costs plus fixed costs.

E) variable costs plus fixed overhead.

22) The opportunity cost of holding significant inventory includes

A) contribution margin on the extra inventory.

B) additional insurance costs.

C) additional storage costs.

D) the cost of the inventory plus the added insurance and storage costs.

E) the interest forgone on an alternative investment.

23) A local accounting firm has offered to do all the billings and collections of a general practitioner. The annual fee will be $12,000. The service will replace the part-time bookkeeper who works for $12 an hour, 10 hours a week. Because outsourcing accounting activities will take place away from the office, the doctor estimates that she will have one additional hour a week to see patients. Normally she sees four patients an hour with an average visit fee of $100. The office is open 50 weeks a year. Since the computer service will maintain all records in its office, the doctor will no longer need to rent storage space for the office files. The storage space rents for $150 a month.

Required:

Determine whether or not the doctor should accept the offer to use the computer service.

24) Car Parts Company manufactures a part for use in its production of automobiles. The costs per unit when 10,000 items are produced are:

Direct materials$6

Direct manufacturing labour30

Variable manufacturing overhead12

Fixed manufacturing overhead16

Total$64

Auto Company has offered to sell to Car Parts Company 10,000 units of the part for $60. The plant facilities could be used to manufacture another part at a savings of $90,000 if Car Parts accepts the offer. In addition, $10 per unit of fixed manufacturing overhead on the original part would be eliminated.

Required:

a.What is the relevant per unit cost for the original part?

b.Which alternative is best for Car Parts Company? By how much?