In the last 6 months, demand for one of Appleby Company's products has dropped off considerably, due mainly to it becoming obsolescent as a result of technological change. Knowing that the equipment used in the manufacture of this product may not be easy to sell, Appleby spent $50,000 on consultants to determine whether it could use the equipment to produce a new product under license by another company. The consultant has determined that this product would have variable production costs of $65 per unit and should sell at a price of $90/unit. The licensing royalty is 5% of gross product revenue. Estimated annual demand is 20,000 units per year. Additional annual operating costs related to this product are $30,000/year (excluding depreciation). Depreciation on the equipment is $15,000. Annual depreciation expense is a: O a. Sunk cost O b. Relevant cost Oc. Both sunk and Irrelevant cost Od. Irrelevant cost

In the last 6 months, demand for one of Appleby Company's products has dropped off considerably, due mainly to it becoming obsolescent as a result of technological change. Knowing that the equipment used in the manufacture of this product may not be easy to sell, Appleby spent $50,000 on consultants to determine whether it could use the equipment to produce a new product under license by another company. The consultant has determined that this product would have variable production costs of $65 per unit and should sell at a price of $90/unit. The licensing royalty is 5% of gross product revenue. Estimated annual demand is 20,000 units per year. Additional annual operating costs related to this product are $30,000/year (excluding depreciation). Depreciation on the equipment is $15,000. Annual depreciation expense is a: O a. Sunk cost O b. Relevant cost Oc. Both sunk and Irrelevant cost Od. Irrelevant cost

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter7: Variable Costing For Management analysis

Section: Chapter Questions

Problem 2PA: The demand for solvent, one of numerous products manufactured by Logan Industries Inc., has dropped...

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