Chapter 7 answers

Chapter 7 answers - Chapter 7 1 Exercise 2 (Moderate, 10...

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Chapter 7 1 Exercise 2 (Moderate, 10 minutes) a. Product A Product B Sales value with additional processing $ 100,000 $ 38,000 Sales value at the split off 86,000 27,000 Inc. revenue from processing $ 14,000 $ 11,000 Inc. costs of processing 16,000 4,000 Inc. profit from additional processing $ (2,000 ) $ 7,000 Product B should be processed beyond the split-off point and Product A should be sold at the split-off point. b. None of the costs incurred before the split-off point are relevant. In other words, none of the joint production costs are relevant. Exercise 4 (Moderate, 10 minutes) a. Sunk costs include the original cost of the old equipment and accumulated depreciation on the old equipment. b. The only irrelevant future costs are the $3,000 of annual cash operating costs that are common to both alternatives. c. Cost of the new equipment: $ 21,000 Difference in cash operating costs: 4,000 per year Current salvage value of the old equipment: 2,000 d. Two opportunity costs: the savings in operating costs, $4,000 per year, and the current salvage value of the old machine, $2,000. e. The incremental purchase cost of the new machine is: Purchase cost of new machine $ 21,000 Less the salvage on the old machine 2,000 Incremental cost $ 19,000 Exercise 6 (Moderate, 20 minutes) Analysis of relevant differential costs/benefits – keeping versus replacing old machine Keep Replace (Costs)/Benefits of New Machine
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Chapter 7 answers - Chapter 7 1 Exercise 2 (Moderate, 10...

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