Exercise $13-1($Static$)$ Identifying Relevant Costs $[$LO$13-1]$

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 B$100$ machine is the company's constraint. Management is considering purchasing a Model B$300$ machine to use in addition to the company's present Model B$100$ machine. The old Model B$100$ machine will continue to be used to capacity as before, with the new Model B$300$ 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 fixed selling expenses and in general administrative overhead, but not in the fixed manufacturing overhead.

Case B:

The old Model B$100$ machine is not the company's constraint, but management is considering replacing it with a new Model B$300$ machine because of the potential savings in direct materials with the new machine. The Model B$100$ machine would be sold. This change will have no effect on production or sales, 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$.$

$\backslash$table$[[$Item$,$Case A$,$Case B$],[$a$.$ Sales revenue,,$],[$b$.$ Direct materials,,$],[$c$.$ Direct labor,,$],[$d$.$ Variable manufacturing overhead,,$]]$