Question

1. Assume that a fast-food chain is considering replacing all of its deep fryers. The new fryers use less energy to operate than the existing fryers. Two costs that have been discussed by various employees with respect to this decision include (1) the utility cost (or energy cost) that would continue to be incurred if the company decides to keep its existing fryers, and (2) the utility cost (or energy cost) that would be incurred to operate the new fryers if the company decides to replace its existing fryers. Which of the following choices properly classifies each of these costs as being relevant or irrelevant in the decision to "keep or replace" the fryers?

	Cost: Utility Cost			Cost:
	Associated with Keeping the Existing			Salvage Value of the
	Fryers			Existing Fryers
	Relevant	Irrelevant		Relevant	Irrelevant
A)	No	Yes		No	Yes
B)	Yes	No		Yes	No
C)	Yes	No		No	Yes
D)	No	Yes		Yes	No

12.

Assume that a fast-food chain is considering replacing all of its deep fryers. The new fryers use less energy to operate than the existing fryers. Two costs that have been discussed by various employees with respect to this decision include (1) the utility cost (or energy cost) that would continue to be incurred if the company decides to keep its existing fryers, and (2) the price the company could charge to sell its existing fryers (also called the fryers' salvage value). Which of the following choices properly classifies each of these costs as being relevant or irrelevant in the decision to "keep or replace" the fryers?

	Cost: Utility Cost			Cost:
	Associated with Keeping the Existing			Salvage Value of the
	Fryers			Existing Fryers
	Relevant	Irrelevant		Relevant	Irrelevant
A)	No	Yes		No	Yes
B)	Yes	No		No	Yes
C)	Yes	No		Yes	No
D)	No	Yes		Yes	No

Answer 1

Answer-1- The correct option is c-

		Cost: Utility Cost			Cost:
		Associated with Keeping the Existing			Salvage Value of the
		Fryers			Existing Fryers
	Relevant	Irrelevant		Relevant	Irrelevant
C)	Yes	No		No	Yes

12-The correct option is d-

		Cost: Utility Cost			Cost:
		Associated with Keeping the Existing			Salvage Value of the
		Fryers			Existing Fryers
	Relevant	Irrelevant		Relevant	Irrelevant
D)	No	Yes		Yes	No

A. Relevant cost are those cost which will be incurred or saved as a result of new investment. Since utility cost is incurred previously and will continue to be incurred, it is irrelevant cost . For same reason, salvage value is relevant cost.