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Hello everyone
I'm studying relevant costing and I'm having a problem trying to know which of the two revenues are relevant in the following question " Mary Ltd bought a machine one year ago and at purchase entered into a maintenance contract for #30,000 covering a three years period. The machine is used to make Nigerian hair. It is forecasted that sales of Nigerian hair made by this machine would be disappointing and generate #15000 per annum for the next two years. Due to the planned expansion of the hair business by Mary Ltd, the machine can however be sold for #25000 and replaced with another machine costing #50000 with annual sales of #35000 per annum for the next two years.
Therefore, which of the two future cash inflows is relevant to the decision to expand the business and why?
I'm studying relevant costing and I'm having a problem trying to know which of the two revenues are relevant in the following question " Mary Ltd bought a machine one year ago and at purchase entered into a maintenance contract for #30,000 covering a three years period. The machine is used to make Nigerian hair. It is forecasted that sales of Nigerian hair made by this machine would be disappointing and generate #15000 per annum for the next two years. Due to the planned expansion of the hair business by Mary Ltd, the machine can however be sold for #25000 and replaced with another machine costing #50000 with annual sales of #35000 per annum for the next two years.
Therefore, which of the two future cash inflows is relevant to the decision to expand the business and why?