QUUr decision with only relevantnumbers.Problem 15Marita Lo desires to purchase a new front office computer system for her Lo Motel (LOMO).After considerable discussion with purveyors, she has narrowed her choices to systems soldby ABC Company and XYZ Computers. The system proposed by each company is expectedto have a useful life of seven years. She believes the alternative systems are equívalent forproviding services required by the LOMO; therefore, her focus is cost. The associated costs0000of each system are as follows: 334 Chapter 6ABCXYZ000.Cdb ComputersCo.002.000$25,000$30,000Initial costAnnual costs:25,00025,000Labor1,000800Utilitiesips2,0002,000SuppliesRequred3,0002,500Maintenance1.Salvage value(in 7 years)5,0008,000Required:molls rbeekat amoom1. Which costs are irrelevant?2. Which system should Marita purchase? (Ignore the time value of money.) Supportyour decision with numbers.

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Asked Feb 18, 2020
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QUUr decision with only relevant
numbers.
Problem 15
Marita Lo desires to purchase a new front office computer system for her Lo Motel (LOMO).
After considerable discussion with purveyors, she has narrowed her choices to systems sold
by ABC Company and XYZ Computers. The system proposed by each company is expected
to have a useful life of seven years. She believes the alternative systems are equívalent for
providing services required by the LOMO; therefore, her focus is cost. The associated costs
0000
of each system are as follows:
help_outline

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QUUr decision with only relevant numbers. Problem 15 Marita Lo desires to purchase a new front office computer system for her Lo Motel (LOMO). After considerable discussion with purveyors, she has narrowed her choices to systems sold by ABC Company and XYZ Computers. The system proposed by each company is expected to have a useful life of seven years. She believes the alternative systems are equívalent for providing services required by the LOMO; therefore, her focus is cost. The associated costs 0000 of each system are as follows:

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334 Chapter 6
ABC
XYZ
000.C
db Computers
Co.
002.
000
$25,000
$30,000
Initial cost
Annual costs:
25,000
25,000
Labor
1,000
800
Utilities
ips
2,000
2,000
Supplies
Requred
3,000
2,500
Maintenance
1.
Salvage value
(in 7 years)
5,000
8,000
Required:
molls rbee
kat amoom
1. Which costs are irrelevant?
2. Which system should Marita purchase? (Ignore the time value of money.) Support
your decision with numbers.
help_outline

Image Transcriptionclose

334 Chapter 6 ABC XYZ 000.C db Computers Co. 002. 000 $25,000 $30,000 Initial cost Annual costs: 25,000 25,000 Labor 1,000 800 Utilities ips 2,000 2,000 Supplies Requred 3,000 2,500 Maintenance 1. Salvage value (in 7 years) 5,000 8,000 Required: molls rbee kat amoom 1. Which costs are irrelevant? 2. Which system should Marita purchase? (Ignore the time value of money.) Support your decision with numbers.

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Expert Answer

Step 1

Differential cost analysis of two alternatives is made by taking the relevant costs of the alternatives. The decision to choose any alternative is made after considering the differential analysis.

Step 2

1)

Irrelevant costs are those costs which does not change with the change in management decision. Here, the cost of labor and supplies is constant with any decision. They do not change with the change in the decision. Therefore,

The cost of labor and the cost of supplies are irrelevant costs.

Step 3

2)

The system that should be purchased is decided by taking the differential analysis of both the systems. The differential analysis is as follows:

Accounting homework question answer, step 3, image 1

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