ScholarMatic: Explanation & Answer
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EXERCISE 7-10. Dropping a Product: Relevant Costs. E-Teller, Inc., manufactures ATM machines. Recently the company has begun manufacturing and marketing a machine that can recognize customer fingerprints. Demand for this machine is very strong, and the chief executive officer of E-Teller is considering dropping production of the company’s original model, which relies on bankcards and passwords. This will give the company increased capacity to devote to the new model. Which of the following items are relevant to the CEO’s decision to drop the old model machine?
a. The original cost of equipment used to manufacture the old model.
b. Depreciation of the equipment used to manufacture the old model (ignore taxes).
c. The CEO’s salary.
d. The time it takes to manufacture each model.
e. The production manager’s salary.
f. The selling price of the new model.
g. The variable cost of producing the new model.
h. The cost of retraining personnel to make the newer model.
i. Depreciation of the factory building allocated to the old model.
ScholarMatic: Explanation & Answer
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