Answer the following question(s) using the information below.


Jim’s 5-year-old Geo Prizm requires repairs estimated at $3,000 to make it road worthy again. His friend, Julie, suggested that he should buy a 5-year-old used Honda Civic instead for $3,000 cash. Julie estimated the following costs for the two cars:



Geo Prizm

Honda Civic

Acquisition cost





Annual operating costs



(Gas, maintenance, insurance)




31) The cost NOT relevant for this decision is the

A) acquisition cost of the Geo Prizm.

B) acquisition cost of the Honda Civic.

C) repairs to the Geo Prizm.

D) annual operating costs of the Honda Civic.

E) annual operating costs of the Geo Prizm.

32) What should Jim do? What are his savings in the first year?

A) Buy the Honda Civic; $15,080

B) Fix the Geo Prizm; $2,820

C) Buy the Honda Civic; $180

D) Fix the Geo Prizm; $5,280

E) Buy the Honda Civic; $80


33) 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.



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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