Consider the following case:
Management is considering purchasing a Model B300 machine to use in addition to the company's present Model B100 machine. 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.
Which of the following items would be considered relevant to the case?
A) Variable manufacturing overhead
B) Depreciation - Model B100 machine
C) Both of the above
D) None of the above

Question

Quizplus · Accepted Answer

Variable manufacturing overhead is relevant because it will change with the increase in production volume due to the addition of the Model B300 machine. Depreciation on the Model B100 machine is not relevant to the decision, as it is a sunk cost and will not be affected by the purchase of the new machine.

Consider the Following Case