Reference no: EM132583335

The management of Boehm & De Graaf A/S, a Danish furniture manufacturer, must determine whether certain costs are relevant in two different cases:

Case 1: The company chronically runs at capacity, and the old Model A3000 machine is the company's constraint. Management is considering purchasing a new Model B3800 machine to use in addition to the Model A3000 machine. The old Model A3000 machine would continue to be used to capacity as before, with the new Model B3800 being used to expand production. The increase in volume would be large enough to require increases in fixed selling expenses and in general administrative overhead, but not in the general fixed manufacturing overhead.

Case 2: The old Model A3000 machine is not the company's constraint, but management is considering replacing it with a new Model B3800 machine because of the potential savings in direct materials cost with the new machine. The Model A3000 machine would be sold. This change would have no effect on production or sales, other than some savings in direct materials costs due to less waste.

Required:

Question 1: Select the appropriate column to indicate whether each item is relevant or not relevant to each of the two cases. Consider the two cases independently.

case 1 case 2

a. sales revenue

b direct materials

cdirect labour

variable manufacturing overhead

book value model a3000 machine

depreciation model a3000 machine

market value model b3800 machine cost

fixed manufacturing overhead general

variable selling expense

fixed selling expense

fixed selling expense

general administrative overhead