What makes a cost relevant or irrelevant? Identify the two typesof relevant costs. Why are sunk costs irrelevant in decidingwhether to sell a product in its present condition or to make itinto a new product through additional processing?
What makes a cost relevant or irrelevant? Identify the two typesof relevant costs. Why are sunk costs irrelevant in decidingwhether to sell a product in its present condition or to make itinto a new product through additional processing?
Related questions
Doherty Company is considering replacing the individual printers each employee in the corporate office currently uses with a network printer located in a central area. The network printer is more efficient andâ would, therefore, cost less to operate than the individual printers.â However, most of the office staff think having to use a centralized printer would be inconvenient. They prefer to have individual printers located at each desk. Identify the following information as financial or nonfinancial and relevant or irrelevant. The first item has been completed as an example. â(Identify the items listed with anâ "X" for each item as financial or nonfinancial and relevant or irrelevant. Leave unused cellsâ blank.)
Financial Nonfinancial Relevant Irrelevant
|
| X | X |
Resale value of current printers
Cost of new printer
Operating costs of current printers
Operating costs of new printers
Employee morale
The Johnny Pickles Brewing Company is considering adding a newpiece of equipment to the beer making process. No additional spacewill be required if the new equipment is added. Theequipment will result in an increase in production as well asimprovement in quality that should allow the brewery to increasethe price it charges for its premium beers. Determine if the itemsbelow are relevant to the decision to add additional equipment.
| Consideration | Relevant/Irrelevant |
| Rent on the building where the beer is made. No additionalspace required. | [ Select ] ["Relevant", "Irrelevant"] |
| The amount the brewery spends on raw materials | [ Select ] ["Relevant", "Irrelevant"] |
| The top line sales revenue for the brewery | [ Select ] ["Irrelevant", "Relevant"] |
| The cost of the new equipment | [ Select ] ["Irrelevant", "Relevant"] |
| The future salvage of the existing equipment | [ Select ] ["Irrelevant", "Relevant"] |
With respect to pricing, when a company offers a unique, indemand product, it is most likely a [ Select ] ["Cost Plus", "Target Pricing", "PriceTaker", "Market Leader", "Price Setter"] and it will most likely target a [ Select ] ["Cost Plus", "Price Setter", "MarketLeader", "Price Taker", "Target Pricing"] model for setting its price. Conversely, when a companyoffers a relatively undifferentiated product with relativelyaverage demand it would most likely be considereda [Select ] ["Target Pricing", "MarketLeader", "Price Taker", "Price Setter", "Cost Plus"] and would utilize a [ Select ] ["Market Leader", "Price Setter", "CostPlus", "Price Taker", "Target Pricing"] model for setting the price of its products.
The income statement for Bauer Online Real Estate Training ispresented below. The management team at the real estate trainingcompany is not pleased with the performance of their residentialreal estate training line and is considering dropping it. A coststudy of the residential training line has revealed that $42794 ofthe Selling and $33028 of the Administrative fixed expenses cannotbe avoided if the residential real estate training line is dropped.If the management at Bauer Online Real Estate Training decides todrop the line, what will the new company net income be? Calculateyour answer to the nearest whole dollar.
| Total | Residential | Commercial | |
| Sales Revenue | $527000 | $185000 | $342000 |
| Variable Costs | 112000 | 34000 | 78000 |
| Contribution Margin | 415000 | 151000 | 264000 |
| Fixed Costs: | |||
| Selling | 185000 | 88000 | 97000 |
| Administrative | 203000 | 94000 | 109000 |
| Total Fixed Expenses | 388000 | 182000 | 206000 |
| Operating Income (Loss) | $27000 | $(31000) | $58000 |
