Question

A. Grace Co. can further process Product B to produce Product C. Product B is currently selling for $23 per pound and costs $17 per pound to produce. Product C would sell for $44 per pound and would require an additional cost of $11 per pound to produce. What is the differential revenue of producing and selling Product C? Choose the correct answer below. $33 per pound 4 per pound $21 per pound $27 per pound B. Delaney Company is considering replacing equipment that originally cost $540,000 and that has $378,000 accumulated depreciation to date. A new machine will cost $895,000. What is the sunk cost in this situation? Choose the correct answer below. $733,000 $162,000 $129,600 $540,000

Answer 1

A	Revenue from Product C	$            44	per pound
	Less: Revenue from Product B	$            23	per pound
	Differencial Revenue	$            21	per pound
B	Original cost of old equipment	$ 540,000
	Less: Accumulated Depreciation	$ 378,000
	Sunk Cost	$ 162,000
C	Units in offer	$   27,500
	X Selling price in offer	$            17
	Differencial Revenue	$ 467,500
D	Units in offer	$   24,000
	X Variable cost per unit	$            12
	Differencial Cost	$ 288,000
E	Differencial Revenue (29000 * $19)	$ 551,000
	Less: Differencial Cost (29000 * $10)	$ 290,000
	Amount of income or loss	$ 261,000	income
F	Equipment Leased :
	Lease Income	$   49,000
	Less: Repair, Insurance & Property tax	$   12,000	$    37,000
	Equipment Sold :
	Sale price of equipment	$   29,000
	Less: Broker Commission	$      2,900	$    26,100
	Net Differential Income		$    10,900