Author Question: Pat, a Pizzeria manager, replaced the convection oven just six months ago. Today, Turbo Ovens ... (Read 79 times)

fbq8i · **on:** Mar 6, 2021

Question 1

Overhead costs allocated to the sales office and individual customers are always relevant when deciding whether to drop a customer.
◦ true
◦ false

Question 2

Pat, a Pizzeria manager, replaced the convection oven just six months ago. Today, Turbo Ovens Manufacturing announced the availability of a new convection oven that cooks more quickly with lower operating expenses. Pat is considering the purchase of this faster, lower-operating cost convection oven to replace the existing one they recently purchased. Selected information about the two ovens is given below:

Existing

New Turbo Oven

Original cost

$60,000

$50,000

Accumulated depreciation

$ 5,000

-

Current salvage value

$40,000

-

Remaining life

5 years

Annual operating expenses

$10,000

$ 7,500

Disposal value in 5 years

$ 0

Required:
a. What costs are sunk?
b. What costs are relevant?
c. What are the net cash flows over the next 5 years assuming the Pizzeria purchases the new convection oven?
d. What other items should Pat, as manager of the Pizzeria, consider when making this decision?

chem1s3 · **Reply #1 on:** Mar 6, 2021

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