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Managerial Accounting

Freestone Company is considering buying Machine B to replace Machine A.  Both machines have the same remaining useful life and will perform the same tasks.  However, it is expected that B will require less direct labor usage to operate the machine than does A.  B will also increase production, generating additional contribution margin from product sales for the company.  For this decision problem, which of the following factors is (are) relevant?

I.     Original cost of Machine A

II.   Contribution Margin from sales generated by each machine

III. Cost to purchase Machine B

IV.  Cost of direct labor to operate each machine

 

a.  Only I, III, and IV

b.  Only II, III, and IV

c.   Only I and III

d.  I, II, III, and IV are all relevant


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