A number of costs are listed below that may be relevant in decisions faced by the management of Svahn,AB, a Swedish manufacturer of sailing yachts:Case 1 Case 2Not NotItem Relevant Relevant Relevant Relevanta. Sales revenue .................................................b. Direct materials ...............................................c. Direct labor ......................................................d. Variable manufacturing overhead ..................e. Depreciation—Model B100 machine ..............f. Book value—Model B100 machine .................g. Disposal value—Model B100 machine ...........h. Market value—Model B300 machine (cost) ....i. Fixed manufacturing overhead (general) ........j. Variable selling expense .................................k. Fixed selling expense .....................................l. General administrative overhead ....................Required:Copy the information above onto your answer sheet and place an X in the appropriate column to indicatewhether each item is relevant or not relevant in the following situations. Requirement 1 relates to Case 1above, and requirement 2 relates to Case 2.1. The company chronically has no idle capacity and the old Model B100 machine is the company’sconstraint. Management is considering purchasing a Model B300 machine to use in addition to thecompany’s present Model B100 machine. The old Model B100 machine will continue to be usedto capacity as before, with the new Model B300 machine being used to expand production. Thiswill increase the company’s production and sales. The increase in volume will be large enough torequire increases in fixed selling expenses and in general administrative overhead, but not in the fixedmanufacturing overhead.2. The old Model B100 machine is not the company’s constraint, but management is considering replacingit with a new Model B300 machine because of the potential savings in direct materials with the newmachine. The Model B100 machine would be sold. This change will have no effect on production orsales, other than some savings in direct materials costs due to less waste.
A number of costs are listed below that may be relevant in decisions faced by the management of Svahn,
AB, a Swedish manufacturer of sailing yachts:
Case 1 Case 2
Not Not
Item Relevant Relevant Relevant Relevant
a. Sales revenue .................................................
b. Direct materials ...............................................
c. Direct labor ......................................................
d. Variable manufacturing overhead ..................
e. Depreciation—Model B100 machine ..............
f. Book value—Model B100 machine .................
g. Disposal value—Model B100 machine ...........
h. Market value—Model B300 machine (cost) ....
i. Fixed manufacturing overhead (general) ........
j. Variable selling expense .................................
k. Fixed selling expense .....................................
l. General administrative overhead ....................
Required:
Copy the information above onto your answer sheet and place an X in the appropriate column to indicate
whether each item is relevant or not relevant in the following situations. Requirement 1 relates to Case 1
above, and requirement 2 relates to Case 2.
1. The company chronically has no idle capacity and the old Model B100 machine is the company’s
constraint. Management is considering purchasing a Model B300 machine to use in addition to the
company’s present Model B100 machine. The old Model B100 machine will continue to be used
to capacity as before, with the new Model B300 machine being used to expand production. This
will increase the company’s production and sales. The increase in volume will be large enough to
require increases in fixed selling expenses and in general administrative overhead, but not in the fixed
manufacturing overhead.
2. The old Model B100 machine is not the company’s constraint, but management is considering replacing
it with a new Model B300 machine because of the potential savings in direct materials with the new
machine. The Model B100 machine would be sold. This change will have no effect on production or
sales, other than some savings in direct materials costs due to less waste.
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