Joseph Company Is Considering Replacing an Existing Piece of Machinery

question 56

Multiple Choice

Joseph Company is considering replacing an existing piece of machinery with newer technology.In deciding whether to replace the existing machinery,management should consider which costs as relevant?

• A)Future costs which will be classified as fixed rather than variable.
• B)Future costs which will be different under the two alternatives.
• C)Sunk costs associated with the old machine.
• D)Historical costs associated with the old machine.

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Definitions:

Markup

The amount added to the cost price of goods to cover overhead and profit, determining the selling price of the product.

Selling Price

The cost at which an item is offered to buyers in the marketplace.

Manufacturing Costs

Expenses directly related to the production of goods, including raw materials, labor, and factory overhead.

Overhead Applied

is the amount of manufacturing overhead cost allocated to each product or job, based on a predetermined overhead rate.