Relevant and irrelevant costs. Answer the following questions. ...

[notis]

Relevant and irrelevant costs.
 
  Answer the following questions.
  1. DeCesare Computers makes 5,200 units of a circuit board, CB76, at a cost of 280 each. Variable cost per unit is 190 and fixed cost per unit is 90. Peach Electronics offers to supply 5,200 units of CB76 for 260. If DeCesare buys from Peach it will be able to save 10 per unit in fixed costs but continue to incur the remaining 80 per unit. Should DeCesare accept Peach's offer? Explain.
  2. LN Manufacturing is deciding whether to keep or replace an old machine. It obtains the following information:
 
  LN Manufacturing uses straight-line depreciation. Ignore the time value of money and income taxes. Should LN Manufacturing replace the old machine? Explain.

Question 2

The liability created when supplies are bought on account is called an account payable.
  Indicate whether the statement is true or false

[Dinolord]

Answer to Question 1

1.
Make Buy
Relevant costs
Variable costs 190
Avoidable fixed costs 10
Purchase price ____ 260
Unit relevant cost 200 260

DeCesare Computers should reject Peach's offer. The 80 of fixed costs is irrelevant because it will be incurred regardless of this decision. When comparing relevant costs between the choices, Peach's offer price is higher than the cost to continue to produce.

2.
Keep Replace Difference
Cash operating costs (3 years) 52,500 46,500 6,000
Current disposal value of old machine (2,200) 2,200
Cost of new machine _ _____ 9,000 (9,000)
Total relevant costs 52,500 53,300  (800)

LN Manufacturing should keep the old machine. The cost savings are less than the cost to purchase the new machine.

Answer to Question 2

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