Chapter 2, Problem 2.28AE

Determine whether information is relevant (Learning Objective 6)

Classify each of the following costs as relevant or irrelevant to the decision at hand and briefly explain your reason.

1. a. The fair market value of old manufacturing equipment when deciding whether to replace it with new equipment (old equipment will be sold if new equipment is purchased)
2. b. Cost of purchasing packaging materials from an outside vendor when deciding whether to continue manufacturing the packaging materials in-house
3. c. Depreciation expense on old manufacturing equipment when deciding whether to replace it with newer equipment
4. d. The total amount of the restaurant’s fixed costs when deciding whether to add additional items to the menu
5. e. The cost of land purchased three years ago when deciding whether to build on the land now or wait two more years before building
6. f. The interest rate received on invested funds when deciding how much inventory to keep on hand
7. g. Cost of computers purchased six months ago when deciding whether to upgrade to computers with a faster processing speed
8. h. The property tax rates in different locales when deciding where to locate the company’s headquarters
9. i. The type of fuel (gas or diesel) used by delivery vans when deciding which make and model of van to purchase for the company’s delivery van fleet
10. j. Cost of operating automated production machinery versus the cost of direct labor when deciding whether to automate production