Decision Making and Relevant Information

11767 Words48 Pages
CHAPTER 11
DECISION MAKING AND RELEVANT INFORMATION

11-16 (20 min.) Disposal of assets.

1. This is an unfortunate situation, yet the $75,000 costs are irrelevant regarding the decision to remachine or scrap. The only relevant factors are the future revenues and future costs. By ignoring the accumulated costs and deciding on the basis of expected future costs, operating income will be maximized (or losses minimized). The difference in favor of remachining is $2,000: (a) (b) Remachine Scrap Future revenues $30,000 $3,000 Deduct future costs 25,000 – Operating income $ 5,000 $3,000 [pic] Difference in favor of remachining $2,000

2. This, too, is an unfortunate situation. But the $100,000
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If, however, accepting the special order would cause the regular customers to be dissatisfied or to demand lower prices, then Award Plus will have to trade off the
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