Identifying Relevant Costs Syahn, AB, is a Swedish manufacturer of sailing yachts The company has assembled the information shown below that pertains to two independent decision-making contexts called Case A and Case B: Case A: The company chronically has no idle capacity and the old Model B100 machine is the company’s constraint Management is considering purchasing a Model B300 machine to use in addition to the company’s present Model B100 machine. The old Model B100 machine will continue to be used to capacity as before, with the new Model B300 machine being used to expand production. This will increase the company’s production and sales. The increase in volume will be large enough to require increases in fixed selling expenses and in general administrative overhead , but not in the fixed manufacturing overhead. Cue B: The old Model B100 machine is not the company’s constraint, but management is considering replacing it with a new Model B300 machine because of the potential savings in direct materials with the new machine The Model B100 machine would be sold. This change will have no effect on production or sales, other than some savings in direct materials costs due to less waste. Required: Copy the information below onto your answer sheet and place an x in the appropriate column to indicate whether each item is relevant or irrelevant to the decision context described in Case A and Case B.
Identifying Relevant Costs Syahn, AB, is a Swedish manufacturer of sailing yachts The company has assembled the information shown below that pertains to two independent decision-making contexts called Case A and Case B: Case A: The company chronically has no idle capacity and the old Model B100 machine is the company’s constraint Management is considering purchasing a Model B300 machine to use in addition to the company’s present Model B100 machine. The old Model B100 machine will continue to be used to capacity as before, with the new Model B300 machine being used to expand production. This will increase the company’s production and sales. The increase in volume will be large enough to require increases in fixed selling expenses and in general administrative overhead , but not in the fixed manufacturing overhead. Cue B: The old Model B100 machine is not the company’s constraint, but management is considering replacing it with a new Model B300 machine because of the potential savings in direct materials with the new machine The Model B100 machine would be sold. This change will have no effect on production or sales, other than some savings in direct materials costs due to less waste. Required: Copy the information below onto your answer sheet and place an x in the appropriate column to indicate whether each item is relevant or irrelevant to the decision context described in Case A and Case B.
Solution Summary: The author explains the factors to be taken care while deciding whether cost is relevant or irrelevant while taking a decision.
Identifying Relevant Costs Syahn, AB, is a Swedish manufacturer of sailing yachts The company has assembled the information shown below that pertains to two independent decision-making contexts called Case A and Case B: Case A: The company chronically has no idle capacity and the old Model B100 machine is the company’s constraint Management is considering purchasing a Model B300 machine to use in addition to the company’s present Model B100 machine. The old Model B100 machine will continue to be used to capacity as before, with the new Model B300 machine being used to expand production. This will increase the company’s production and sales. The increase in volume will be large enough to require increases in fixed selling expenses and in general administrative overhead, but not in the fixed manufacturing overhead. Cue B: The old Model B100 machine is not the company’s constraint, but management is considering replacing it with a new Model B300 machine because of the potential savings in direct materials with the new machine The Model B100 machine would be sold. This change will have no effect on production or sales, other than some savings in direct materials costs due to less waste. Required: Copy the information below onto your answer sheet and place an x in the appropriate column to indicate whether each item is relevant or irrelevant to the decision context described in Case A and Case B.
Definition Video Definition Accounting method wherein the cost of a tangible asset is spread over the asset's useful life. Depreciation usually denotes how much of the asset's value has been used up and is usually considered an operating expense. Depreciation occurs through normal wear and tear, obsolescence, accidents, etc. Video
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