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Ace Limited is considering a new project that will require the use of a currently idle
machine. The machine has a current book value of $12,000 and a potential disposal value of
$10,500 (before $200 disposal costs) and hence has been under depreciated by $1,500 over
its life to date. If the machine is to be fit for purpose on the new project it will have to be
relocated at a cost of $500 and refitted at a further cost of $800.
What is the relevant cost of using the machine on the new projectSir answer is 11600
10300+500+800
sir why are we adding 500 and 800 like 10300 we would get if I dispose the machine but why are we adding 500 and 300 that is the amount to pay if I would use the moneyBy using the machine we lose the scrap proceeds that we could have received if we did not use the machine but sold it instead (an opportunity cost). In addition we have the extra costs of relocating and refitting.
Have you watched my free lectures on relevant costing?
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