The Decision to Replace Old Equipment with New Equipment Can

question 95

Multiple Choice

The decision to replace old equipment with new equipment can be analyzed by the

• A)incremental analysis or the replacement method.
• B)replacement method or use Excel.
• C)incremental analysis or calculating the cost of each decision separately.
• D)screening analysis or calculating the cost of each decision separately.

Understand the principle of Capital Cost Allowance (CCA) and its application in depreciation.

Explain the concept of salvage value and its determination at the end of a project’s life.

Evaluate projects using incremental cash flow analysis.

Apply the concept of Equivalent Annual Cost (EAC) to compare mutually exclusive projects with different lives.

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Definitions:

Reciprocal Services Method

A method used in cost accounting to allocate costs between interdependent departments, acknowledging mutual services they provide to each other.

Support Department Costs

The expenses associated with departments that do not directly produce goods or services but are necessary for the operation of the business, such as HR and IT departments.

Total Janitorial Department Cost

The complete expenses associated with maintaining and cleaning a facility, attributed to the janitorial department.

Net Realizable Value

The estimated selling price in the ordinary course of business minus any costs of completion, transportation, and selling.