Zippy Frozen Foods purchased new computer-controlled production machinery last year from Advanced Design. The equipment was purchased for $4.1 million and was paid for with cash. A representative from Advanced Design recently contacted Zippy management because Advanced Design has an even more efficient piece of machinery available. The new design would double the production output of the equipment purchased last year but would cost Zippy another $5.0 million. The old machinery was installed by an engineering firm; the same firm would be required to install the new machinery. Fixed selling costs would not change if the new machinery were to be purchased. The variance selling cost per unit would decrease. Raw material costs (i.e., food ingredients) would remain the same with either machine. The new machinery would be purchased by signing a note payable at the bank and interest would be paid monthly on the note payable. Maintenance costs on the new machine would be the same as the maintenance costs on the machinery purchased last year. Advanced Design is offering a trade-in on the machinery purchased last year against the purchase price of the new machinery.
For each of the following costs, indicate whether each of the costs described would be relevant or not to Zippy Frozen Foods' decision about whether to purchase the new machinery or not.
_________________________Item Relevant Not Relevant
a. Book value of old machine . . . . . . . . . . . . . . . . . . . . . . . . . . . .
b. Maintenance cost of new machine. . . . . . . . . . . . . . . . . . . . . .
c. Maintenance cost of old machine . . . . . . . . . . . . . . . . . . . . . .
d. Installation cost of new machine . . . . . . . . . . . . . . . . . . . . . . .
e. Accumulated depreciation on old machine . . . . . . . . . . . . . . .
f. Cost per pound of pizza dough . . . . . . . . . . . . . . . . . . . . . . . .
g. Installation cost of old machine . . . . . . . . . . . . . . . . . . . . . . . .
h. Cost of the new machine . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
i. Cost of the old machine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
j. Added profits from the increase in production resulting from the new machine . . . . . . . . . . . . .
k. Fixed selling costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
l. Variable selling costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
m. Trade-in value of old machine . . . . . . . . . . . . . . . . . . . . . . . . .
n. Interest expense on new machine . . . . . . . . . . . . . . . . . . . . . .
o. Sales tax paid on old machine . . . . . . . . . . . . . . . . . . . . . . . . .