Question

Fluty Corporation manufactures a product that has two parts, A and B. It is currently considering two alternative proposals related to these parts.
The first proposal is for buying Part A. This would free up some of the plant space for the manufacture of more of Part B and assembly of the final product. The product vice president believes the additional production of the final product can be sold at the current market price. No other changes in manufacturing would be needed.
The second proposal is for buying new equipment for the production of Part B. The new equipment requires fewer workers and uses less power to operate. The old equipment has a net disposal value of zero.

Tell whether the following items are relevant or irrelevant for each proposal. Treat each proposal independently.

a.   Total variable manufacturing overhead, Part A
b.   Total variable manufacturing overhead, Part B
c.   Cost of old equipment for manufacturing Part B
d.   Cost of new equipment for manufacturing Part B
e.   Total variable selling and administrative costs
f.   Sales revenue of the product
g.   Total variable costs of assembling final products
h.   Total direct manufacturing materials, Part A
i.   Total direct manufacturing materials, Part B
j.   Total direct manufacturing labor, Part A
k.   Total direct manufacturing labor, Part B

Answer 1

the following is the required answer for the given proposals:

yes = relevant

no = not relevant

item	proposal I	proposal II
a.	Yes	No
b.	yes	yes
c.	no	no
d.	no	yes
e.	yes	no
f	yes	no
g	yes	no
h	yes	no
i	yes	no
j	yes	no
k	yes	yes

note:

for proposal I cost of new/ old equipment to manufacture B will not be relevant.

for proposal II , anything related to part A will not be relevant, also the total assembling cost will not be relevant.