Fletcher Company Is Trying to Decide Whether to Trade in Equipment

question 53

Essay

Fletcher Company is trying to decide whether to trade in equipment used in its manufacturing process for a newer model.The new equipment will save money because it will be more efficient to use.Indicate if the following items are relevant or irrelevant to this decision.
$$\begin{array} { | l | l | } \hline \text { Item } & \begin{array} { c } \text { Relevant or } \\\text { Irrelevant }\end{array} \\\hline \text { The price of the new equipment } & \\\hline \text { The price paid for the old equipment } & \\\hline \text { The trade in value of the old equipment } & \\\hline \text { The repair costs that will be incurred if the old } & \\\text { equipment is kept } & \\\hline \text { The expected cost savings of the new equipment } & \\\hline \text { The costs that have been incurred on the old equipment } & \\\hline\end{array}$$

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Definitions:

Overhead Applied

A calculation that allocates a portion of estimated overhead costs to individual units of production based on a predetermined formula.

Overhead Applied

The portion of overhead costs assigned to a specific job or department based on a predetermined rate or method.

Activity-Based Costing

A method of accounting that assigns costs to products based on the activities they require.

Overhead Applied

The allocation of overhead costs to specific products or cost centers based on a predetermined rate or method.