CH-13-PROBLEM-1

# CH-13-PROBLEM-1 - 2,500 10,000 Other 5,000 5,000 Net income...

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CHAPTER – 13: RELEVANT COSTS IN DECISION MAKING PROBLEM -1: ABC Co. owns a machine that was purchased 3 years ago for \$ 25,000. Its present book value is \$ 17,500. The company is considering replacing this machine with a new one which will cost \$ 50,000 and have 5-year useful life. The new machine will generate the same amount of revenue as the old machine, but will reduce variable operating expenses substantially. Annual sales and operating costs of the old and new (proposed replacement) machines are based on normal sales volume of 20,000 units. Additional information is as follows: Old machine New machine Sales \$ 60,000 \$ 60,000 Variable expenses 35,000 20,000 Depreciation

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Unformatted text preview: 2,500 10,000 Other 5,000 5,000 Net income \$ 18,500 \$ 26,000 Should this company replace the old machine with the new one ? PROBLEM – 2: Pacific Co. that has a capacity of 100,000 units is currently producing and selling 90,000 units of product each year at a regular price of \$ 2 Assuming that the variable cost per unit is \$ 1, and the annual fixed cost is \$ 45,000; a) Prepare an income statement using variable costing approach. The company has just received an order that calls for 10,000 units at \$ 1,20 for a total of \$ 12,000. The acceptance of this order will not affect regular sales. b) Should this company accept this offer ?...
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CH-13-PROBLEM-1 - 2,500 10,000 Other 5,000 5,000 Net income...

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