12-1

Exercise 12-1 Identifying Relevant Costs (L012-13 Svahn, AB, is a Swedish manufacturer of sailing yachts. The company has assembled the information shown below that pertains to two independent decision-making contexts. Case A: The company chronically has no idle capacity and the old Model B100 machine is the company's constraint Management is considering purchasing a Model 300 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 forced selling expenses and in general administrative overhead, but not in the fixed manufacturing overhead Case B The old Model 8100 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 soles, other than some savings in direct materials costs due to less waste. Required: Based on the information provided above indicate in the appropriate column whether each item is relevant or irrelevant to the decision context described in Case A and Case B. Case A Case B a Sales revenue Direct materials Drect labor Variate manufacturing overhead e. Depreciation Model B100 machine Book valueModel B100 machine Disposal valueModel B100 machine h Mana Model 300 machine cost) Fed manufacturing overhead (general) Variable selling expense Foedseling expense General d istrative overhead