M4-14. Identifying Relevant Costs and Revenues

The City of Ridgeland operates a power plant on a river that flows through town. The village uses

some of this generated electricity to operate a water treatment plant and sells the excess electricity

to a local utility. The city council is evaluating two alternative proposals:

Proposal A calls for replacing the generators used in the plant with more efficient generators

that will produce more electricity and have lower operating costs. The salvage value of the old

generators is higher than their removal cost.

Proposal B calls for raising the level of the dam to retain more water for generating power

and increasing the force of water flowing through the dam. This will significantly increase the

amount of electricity generated by the plant. Operating costs will not be affected.

Required

Presented are a number of cost and revenue items. Indicate in the appropriate columns whether

each item is relevant or irrelevant to proposals A and B.

	Proposal A	Proposal B
1. Cost of new furniture for City Managers office
2. Cost of old generators
3. Cost of new generators
4. Operating cost of old generators
5. Operating cost of new generators
6. Police Chiefs salary
7. Depreciation on old generators
8. Salvage value of old generators
9. Removal cost of old generators
10. Cost of raising dam
11. Maintenance costs of water plant
12. Revenues from sale of electricity