Cubbies Pty Ltd Is Considering the Purchase of a New

question 92

Multiple Choice

Cubbies Pty Ltd is considering the purchase of a new machine to replace an old machine.Selected cost data pertaining to the two machines is provided below.At the end of four years,the company plAns to discontinue the product line for which the machines are used.Income taxes can be ignored.Using the incremental cost approach,calculate the current period (i.e.year zero) cash flows relevant to acquiring the new machine.

• A) $9000 outflow
• B) $4000 inflow
• C) $3000 outflow
• D) $5000 outflow

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Definitions:

Average Fixed Cost

The fixed costs (costs that do not change with the level of output) of producing a good or service, divided by the quantity of output produced.

Total Cost

The entire cost of production, including both fixed and variable costs.

Average Total Cost

Average total cost is the total cost of production (fixed plus variable costs) divided by the total quantity produced, indicative of the cost per unit at different levels of output.

Average Variable Cost

The total variable cost per unit of output, found by dividing total variable costs by the quantity of output produced.