Don Williams is General manager of Carib Systems who received a proposal to replace the Version 1 with Version 2 Point of Sales (POS) equipment at the company. Williams collects data about the proposal on Version 1 and Version 2 as follows: Version 1 POS Version 2 POS Original cost $425,000 S170,000 5 years Useful life З уears Current age 2 years O years Remaining useful life 3 years 3 years Accumulated depreciation $195,000 Not purchased yet Current book value $230,000 Not purchased yet Current disposal value (in cash) S120,000 Not purchased yet Final disposal value (in cash 3 years from now) so so Annual POS cash operating costs $60,000 $20,000 Annual revenues $1,250,000 $1,250,000 Annual non POS related operating costs $920,000 $920,000 Required: As the Management Accountant: 1. Compare the costs of Version 1 POS and Version 2 POS. Consider the cumulative results for the three years together, ignoring the time value of money and income taxes. 2. Advise Mr. Williams on the factors that determine whether a revenue or cost item is relevant for management at Carib Systems and indicate whether he should accept the proposal.

Don Williams is General manager of Carib Systems who received a proposal to replace the Version 1 with Version 2 Point of Sales (POS) equipment at the company. Williams collects data about the proposal on Version 1 and Version 2 as follows: Version 1 POS Version 2 POS Original cost $425,000 S170,000 5 years Useful life З уears Current age 2 years O years Remaining useful life 3 years 3 years Accumulated depreciation $195,000 Not purchased yet Current book value $230,000 Not purchased yet Current disposal value (in cash) S120,000 Not purchased yet Final disposal value (in cash 3 years from now) so so Annual POS cash operating costs $60,000 $20,000 Annual revenues $1,250,000 $1,250,000 Annual non POS related operating costs $920,000 $920,000 Required: As the Management Accountant: 1. Compare the costs of Version 1 POS and Version 2 POS. Consider the cumulative results for the three years together, ignoring the time value of money and income taxes. 2. Advise Mr. Williams on the factors that determine whether a revenue or cost item is relevant for management at Carib Systems and indicate whether he should accept the proposal.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter11: Strategic Cost Management

Section: Chapter Questions

Problem 6E: Keith Golding has decided to purchase a personal computer. He has narrowed his choices to two: Brand...

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