Introduction to Managerial Accounting - Connect Access
8th Edition
ISBN: 9781260519020
Author: BREWER
Publisher: MCG
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Chapter 1, Problem 16E
Cost Classifications for Decision Making
Warner Corporation purchased a machine 7 years ago for $319,000 when it launched product P50. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 300 machine costing $313,000 or by a new model 200 machine costing $275,000. Management has decided to buy the model 200 machine. It has less capacity than the model 300 machine, but its capacity is sufficient to continue making product P50. Management also considered, but rejected, the alternative of dropping product P50 and not replacing the old machine. If that were done, the $275,000 invested in the new machine could instead have been invested in a project that would have returned a total of $374,000.
Required:
1.What is the total differential cost regarding the decision to buy the model 200 machine rather than the model 300 machine?
2. What is the total sunk cost regarding the decision to buy the model 200 machine rather than the model 300 machine?
3. What is the total opportunity cost regarding the decision to invest in the model 200 machine?
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Management of NUBD Corporation is considering whether to purchase a new model L37 machine costing 360,000 or a new model L20 machine costing 340,000 to replace a machine that was purchased 7 years ago for 348,000. The old machine was used to make product LUV until it broke down last week. Unfortunately, the old machine cannot be repaired.
Management has decided to buy the new model L20 machine. It has less capacity than the new model L37 machine, but its capacity is sufficient to continue making product LUV.
Management also considered, but rejected, the alternative of simply dropping product LUV. If that were done, instead of investing 340,000 in the new machine, the money could be invested in a project that would return a total of 250,000.
In making the decision to invest in the model L20 machine, the opportunity cost was?
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Machine Replacement Decision
A company is considering replacing an old piece of machinery, which cost $601,200 and has $352,900 of accumulated depreciation to date, with a new machine that costs $483,900. The old machine could be sold for $64,300. The annual variable production costs associated with the old machine are estimated to be $156,100 per year for eight years. The annual variable production costs for the new machine are estimated to be $101,700 per year for eight years.
a. Prepare a differential analysis dated October 3, to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter zero "0". Use a minus sign to indicate a loss.
Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
October 3
Continue with Old Machine (Alternative 1)
Replace Old…
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Chapter 1 Solutions
Introduction to Managerial Accounting - Connect Access
Ch. 1 - What are the three major types of product costs in...Ch. 1 - Define the following: (a) Direct materials, (b)...Ch. 1 - Explain the difference between a product cost and...Ch. 1 - Distinguish between (a) a variable cost, (b) a...Ch. 1 - What effect does an increase in the activity level...Ch. 1 - Define the following terms: (a) Costbehavior and...Ch. 1 - What is meant by an activity base when dealing...Ch. 1 - Managers often assume a strictly linear...Ch. 1 - Distinguish between discretionary fixed costs and...Ch. 1 - Does the concept of the relevant range apply to...
Ch. 1 - What is the difference between a traditional...Ch. 1 - Prob. 12QCh. 1 - Define the following terms: differential cost,...Ch. 1 - Only variable costs can be differential costs. Do...Ch. 1 - Prob. 1AECh. 1 - This Excel worksheet form is to be used to...Ch. 1 - Martinez Company’s relevant range of production is...Ch. 1 - Martinez Company’s relevant range of production is...Ch. 1 - Martinez Company’s relevant range of production is...Ch. 1 - Prob. 4F15Ch. 1 - Prob. 5F15Ch. 1 - Martinez Company’s relevant range of production is...Ch. 1 - Martinez Company’s relevant range of production is...Ch. 1 - Prob. 8F15Ch. 1 - Martinez Company’s relevant range of production is...Ch. 1 - Martinez Company’s relevant range of production is...Ch. 1 - Martinez Company’s relevant range of production is...Ch. 1 - Martinez Company’s relevant range of production is...Ch. 1 - Martinez Company’s relevant range of production is...Ch. 1 - Martinez Company’s relevant range of production is...Ch. 1 - Prob. 15F15Ch. 1 - Identifying Direct and Indirect Costs Northwest...Ch. 1 - Prob. 2ECh. 1 - Classifying Costs as Product or Period Costs...Ch. 1 - Prob. 4ECh. 1 - Prob. 5ECh. 1 - Traditional and Contribution Format Income...Ch. 1 - Direct and Indirect CostsKubin Company’s relevant...Ch. 1 - Product Costs and Period Costs; Variable and Fixed...Ch. 1 - Fixed, Variable, and Mixed Costs Refer to the data...Ch. 1 - Differential Costs and Sunk Costs Refer to the...Ch. 1 - Cost Behavior; Contribution Format Income...Ch. 1 - Product and Period Cost Flows The Devon Motor...Ch. 1 - Prob. 13ECh. 1 - Cost Classification Wollogong Group Ltd. of New...Ch. 1 - Traditional and Contribution Format Income...Ch. 1 - Cost Classifications for Decision Making Warner...Ch. 1 - Classifying Variable and Fixed Costs and Product...Ch. 1 - PROBLEM 1—18 Direct and Indirect Costs; Variable...Ch. 1 - Traditional and Contribution Format Income...Ch. 1 - Variable and Fixed Costs; Subtleties of Direct and...Ch. 1 - Traditional and Contribution Format Income...Ch. 1 - Cost Terminology; Contribution Format Income...Ch. 1 - Cost Classification Listed below are costs found...Ch. 1 - Different Cost Classifications for Different...Ch. 1 - Traditional and Contribution Format Income...
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