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Managerial Accounting

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Floaty Co. Relevant Costs: Buying Equipment to Improve Process

MGRACT-N8TAMZ

Floaty Co. makes a product that has two parts, A17 and B45. They are considering two initiatives for the upcoming coming year.

The first initiative is to buy part A17 to free up more space to make a new product. The second proposal is for buying new equipment to reduce operating costs in the production of B45. The new equipment is automated and so requires fewer workers to operate and runs cooler so utilities will be lower. The old equipment would be sold for scrap metal as there is no market for the old technology.

Which costs are relevant for the second initiative to buy the equipment for B45?

A

Common fixed costs that support both A17 and B45.

B

The original cost of old equipment.

C

The amount of new capacity freed up by outsourcing A17.

D

The utilities cost at the factory.