- This topic has 5 replies, 2 voices, and was last updated 9 years ago by
.
- Posts
Company purchased some equipment several years ago for $50,000. Its net book value is now $10,000.
Company has been offered a one off contract which would make use of this piece of equipment for six months. After this time the equipment would be sold for $5,000.
What is the relevant cost of the equipment to the contract?
My answer:
$3,000- as this machine would still be sold off eventually for $5,000. The cost the company would have to incur is the lost in sales of $3,000.The model answer:
$8,000, as it is a greater option as a opportunity cost.Why is this so? Is the model answer wrong? I have done a similar question in Kaplan revision kit using my way of answering and gotten it right. This IS really confusing!
Taken from LSBF mock exam 2016.
I do not think you have typed the whole question, because I have no idea where you are getting $3,000 from.
I don’t have LSBF’s mock exam, but if you type the whole question then I will be able to explain.
I’m sorry- missed this one line out.
“The machine could be sold off at $8,000 if the company decides to sell it now.”
On the basis of what you have typed, the relevant cost is certainly $3,000 and not $8,000.
- You must be logged in to reply to this topic.