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Problem 2 - Relevant Costing Decisions (18 points) Part A - Sell or Lease (9 points) Bell Company is considering disposing of equipment that is
Problem 2 - Relevant Costing Decisions (18 points) Part A - Sell or Lease (9 points) Bell Company is considering disposing of equipment that is no longer needed for operations. The equipment originally cost $600,000 and has accumulated depreciation to date of S460,000. Another company has offered to lease the machine from Bell Company for its remaining 4 year useful life for $70,500 per year, after which the equipment will have no salvage value. The repairs, insurance, and property tax expenses, which will be paid by Bell Company, are estimated to be a total of $72,800 for the 4 year lease. Alternately, the equipment can be sold through a broker for $232,000; the broker will charge an 11% commission. 0 Prepare an analysis dated June 30, 2018, on whether the equipment should be leased or sold. Part B - Sell or Process Further (9 points) Knot in the Water, Inc. manufactures ropes for use in boating and water sports. Their ropes sell for S13 per foot and the manufacturing costs are $8.65 per foot. During the recent production of 20,000 feet of rope, the chemical treatment was applied incorrectly. As a result, the rope does not meet industry standards for its intended use and cannot be sold at the regular selling price. Knot in the Water has two options concerning the damaged 20.000 feet of rope: 1) The rope can be sold as is for $4.30 per foot, but it would need to be shipped to the buyer at a cost to Knot in the Water of $2.000; or 2) it can be retreated at a cost of $3.40 per foot and sold for $7.85 per foot. Prepare an analysis dated April 30. 2018. to determine whether Knot in the Water should sell the rope as is or process it further before selling
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