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    jbolewa1's Avatar
    jbolewa1 Posts: 1, Reputation: 1
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    #1

    Jul 25, 2009, 12:54 AM
    Cost Accounting Sunk and Relevant Costs
    Can someone help me solve this cost accounting problem?

    Pat, a Pizzeria manager, replaced the convection oven just six months ago. Today, Turbo Ovens Manufacturing announced the availability of a new convection oven that cooks more quickly with lower operating expenses. Pat is considering the purchase of this faster, lower operating cost, convection oven to replace the existing one they recently purchased. Selected information about the two ovens is given below:

    EXISTING NEW TURBO OVEN
    Original Cost $60,000 $50,000
    Accumulated depreciation $5,000
    Current salvage value $40,000
    Remaining life 5 years 5 years
    Annual operating expense $10,000 $7,500
    Disposal value in 5 years $0 $0

    a. What costs are sunk?
    b. What costs are relevant?
    c. What are the net cash flows over the next 5 years assuming the Pizzeria purchases the new convection oven?
    d. What other items should Pat, as manager of the Pizzeria, consider when making this decision?
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #2

    Jul 25, 2009, 03:38 AM

    Please see the guidelines for posting homework problems:
    Ask Me Help Desk - Announcements in Forum : Homework Help
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