Chalet Ski & Patio manufactures a product that has two parts, X and Y. It is currently considering two alternative proposals related to parts X and Y.
The first proposal is for buying part Y. This would free up some of the plant space for the manufacture of more of part X 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 Y. The new equipment requires fewer workers and uses less power to operate. The old equipment has a net disposal value of zero.
Required:
Tell whether the following items are relevant or irrelevant for each proposal. Treat each proposal independently.
a. Sales revenue of the product.
b. Variable costs of assembling final products.
c. Direct manufacturing materials, part X.
d. Direct manufacturing materials, part Y.
e. Direct manufacturing labour, part X.
f. Direct manufacturing labour, part Y.
g. Variable manufacturing overhead, part X.
h. Variable manufacturing overhead, part Y.
i. Cost of old equipment for manufacturing Y.
j. Cost of new equipment for manufacturing Y.
k. Variable selling and administrative costs.
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