Ch07 adj Werner Jones Mgt Acctg PP97 2003

Because it is a past not a future cost because 2009

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Unformatted text preview: system The is not a relevant consideration in deciding whether to replace the system. • Because it is a past, not a future, cost. Because ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 7 ­ 15 LO4 Determine the Relevant Cost and Benefit of Each Alternative • Depreciation is an allocation of the cost of the Depreciation system which is spread over (or charged to) the future periods in which the equipment is expected to be used. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 7 ­ 16 LO4 Determine the Relevant Cost and Benefit of Each Alternative Relevant Cost of system Total labor cost Residual value $76,000 $90,000 $ 1,000 Irrelevant Depreciation $75,000 Maintenance cost $ 5,000 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 7 ­ 17 LO4 Replacement Cost Comparison Keep Old System Start-up: Cost of new system Operating: Labor cost: Old system New system Shutdown: Residual value of old system Sale price of old system Residual value of new system Total relevant costs Replace Old System $ (76,000) $(180,000) (90,000) 500 $(179,500) 10,000 1,000 $(155,000) $24,500 in favor of buying the new system ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e 7 ­ 18 LO4 Special Orders...
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This note was uploaded on 03/16/2014 for the course ACC 212 taught by Professor Quintanna during the Spring '08 term at University of Miami.

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