Bradley Industries Is Considering Replacing a Machine That Is Presently

question 168

Multiple Choice

Bradley Industries is considering replacing a machine that is presently used in its production process. Which of the following is irrelevant to the replacement decision?
$\begin{array}{|l|r|r|} \hline& \text { Old Machine } & \begin{array}{c}\text { Replacement } \\\text { Machine }\end{array} \\\hline \text { Original cost } & \$ 60,000 & \$ 45,000\\\hline \text { Remaining useful life in years } & 5 & 5 \\\hline \text { Current age in years } & 5 & 0 \\\hline \text { Book value } & \$ 30,000 & \\\hline \text { Current disposal value in cash } & \$ 9000 & \\\hline \text { Future disposal value in cash (in 5 years) } & \$ 0 & \$ 0 \\\hline \text { Annual cash operating costs } & \$ 7000 & \$ 4500\\\hline\end{array}$ Which of the information provided in the table is irrelevant to the replacement decision?

• A) the sales price of the new machine
• B) the original cost of the old machine
• C) the current disposal value of the old machine
• D) the annual cash operating costs for both machines

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Definitions:

Budget Variance

The difference between budgeted or planned financial activity and the actual financial performance.

Fixed Overhead

Costs that do not change with the level of production or business activity, such as rent, salaries of permanent staff, and insurance.

Volume Variance

The difference between the budgeted and actual volume of units sold or produced, impacting direct materials, direct labor, and overhead costs.

Fixed Overhead

The regular, recurring expenses that are not affected by the level of business activity, such as rent, salaries, and insurance.