mental revenues exceed incremental costs b. additional capacity-related costs must be incurred to accommodate the order c. the company placing the order is in the same market segment as your current customers d. None of the above is correct. When deciding whether to discontinue a segment of a business, managers should focus on: a. equipment used by the segment that could become idle b. reallocation of corporate costs c. how total costs differ among alternatives d. operating income per unit of the discontinued segment Costs are relevant to a particular decision if they: a. are flexible costs b. are capacity-related costs c. differ across the alternatives being considered d. remain unchanged across the alternatives being considered
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 43 THROUGH 46. Flowers-For-Everyone is considering replacing its existing delivery van with a new one. The new van can offer considerable savings in operating costs. Information about the existing van and the new van follow: Existing van New van Original cost $100,000 $180,000 Annual operating cost $ 35,000 $ 20,000 Accumulated depreciation $ 60,000 --Current salvage value of the existing van $ 45,000 --Remaining life 10 years 10 years Salvage value in 10 years $ 0 $ 0 Annual depreciation $ 4,000 $ 18,000 43. Sunk costs include: a. the original cost of the existing van b. the original cost of the new van c. the current salvage value of the existing van d. the annual operating cost of the new van Relevant costs for this decision include: a. the original cost of the existing van b. accumulated depreciation c. the current salvage value of the existing van d. the salvage value in 10 years If Flowers-For-Everyone replaces the existing delivery van with the new one, over the next 10 years operating income will: a. decrease by $180,000 b. increase by $150,000 c. decrease by $150,000 d. None of the above is correct. Should Flowers-for-Everyone replace the existing van with the new van? What are the savings or additional cost? a. Yes replace, net savings of $15,000 b. Yes replace, net savings of $150,000 c. No replace, additional costs of $120,000 d. No replace, additional costs of $30,000
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 47 AND 48. Jim’s 5-year-old Geo Prizm requires repairs estimated at $3,000 to make it roadworthy again. His friend, Julie, suggested that he should buy a 5-year-old used Honda Civic instead for $3,000 cash. Julie estimated the following costs for the two cars: Acquisition cost Repairs Annual operating costs (Gas, maintenance, insurance) 47. Geo Prizm $15,000 $ 3,000 $ 2,280 Honda Civic $3,000 --$2,100
The cost(s) NOT relevant for this decision is(are): a. the acquisition cost of the Geo Prizm b. the acquisition cost of the Honda Civic c. the repairs to the Geo Prizm d. the annual operating costs of the Honda Civic What should Jim do? What are his savings in the first year? a. Buy the Honda Civic
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