Variable costs are relevant as also any avoidable

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Acc3210 – Cost AccountingChapter 11 – Lecture Problems Set 1Last Revised: October 31, 20193
11-21Disposal of assets. Answer the following questions.1.A company has an inventory of 1,300 assorted parts for a line of missiles that has beendiscontinued. The inventory cost is $71,000. The parts can be either (a) remachined at totaladditional costs of $27,500 and then sold for $31,500 or (b) sold as scrap for $6,000. Whichaction is more profitable? Show your calculations.2.A truck, costing $102,500 and uninsured, is wrecked its first day in use. It can be either (a)disposed of for $14,000 cash and replaced with a similar truck costing $105,500 or (b) rebuiltfor $86,000 and thus be brand-new as far as operating characteristics and looks areconcerned. Which action is less costly? Show your calculations.SOLUTIONDisposal of assets.
Acc3210 – Cost AccountingChapter 11 – Lecture Problems Set 1Last Revised: October 31, 20194
11-22Relevant and irrelevant costs. Answer the following questions.1.Robinson Computers makes 5,700 units of a circuit board, CB76, at a cost of $230 each.Variable cost per unit is $180 and fixed cost per unit is $50. Peach Electronics offers tosupply 5,700 units of CB76 for $210. If Robinson buys from Peach, it will be able to save$20 per unit in fixed costs but continue to incur the remaining $30 per unit. Should Robinsonaccept Peach’s offer? Explain.2.RT Manufacturing is deciding whether to keep or replace an old machine. It obtains thefollowing information:RT Manufacturing uses straight-line depreciation. Ignore the time value of money and incometaxes. Should RT Manufacturing replace the old machine? Explain.SOLUTIONRelevant and irrelevant costs.1. MakeBuyRelevant costsVariable costs$180Avoidable fixed costs20Purchase price____$210Unit relevant cost$200$210Robinson Computers should reject Peach’s offer. The $30 of fixed costs is irrelevant because itwill be incurred regardless of this decision. When comparing relevant costs between the choices,Peach’s offer price is higher than the cost to continue to produce.2.

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