Question
Power Systems Inc. manufactures jet engines for the United States armed forces on a cost-plus basis. The production cost of a particular jet engine is
Power Systems Inc. manufactures jet engines for the United States armed forces on a cost-plus basis. The production cost of a particular jet engine is shown below:
Direct materials | $200,000 |
Direct labor | 150,000 |
Manufacturing overhead: | |
Supervisors salary | 20,000 |
Depreciation | 12,000 |
Rent | 11,000 |
Total cost | $393,000 |
If production of this engine was discontinued, the production capacity would be idle, and the supervisor would be laid off.
The depreciation referred to above is for special equipment used only to produce this particular line of jet engines. The equipment has no resale value.
The rent is an allocation of total rental costs for the whole manufacturing facility.
Indicate whether each of the listed costs is relevant or irrelevant to the decision whether to discontinue this particular engine product line.
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