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AB Co was thinking to sell one of its production machines for $10000 as its no longer has a use
The machine is depreciated at $2000 per annum. The variable running costs for the machine are $500 per annum.
The company has been approached by a new customer and asked to manufacture one million components for a one-off order. These components can only be manufactured on this machine and production will take place over the coming year.
It has been estimated that the machine could be sold for $6000 in one years’ time.What is the relevant cost of using the machine to produce the components
I am really finding it difficult to do relevant cost of machines ? Can you please help me
Why are you attempting a question for which you do not have an answer? You should be using a Revision Kit from one of the ACCA approved publishers – they have answers and explanations.
If they use the machine for the one-off order, then they lose 10,000 that they would have got if instead the sold the machine now. However they will receive 6,000 in one years time after the order is finished. During the year they will have to pay 500 running costs if the use the machine for the order.
Therefore the cost of using the machine is 10,000 – 6,000 + 500 = 4,500.
I suggest that you watch my free lectures on relevant costing. The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.
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