Answer:
Company A
a. Differential Analysis dated May 29
Alternative 1 Alternative 2
Opportunity cost $250,000 $550,000
Variable production costs 580,000 192,000
Total cost $830,000 $742,000
b. Sunk cost in this situation is: $225,000 ($400,000 - $175,000) cost of the old machine.
Explanation:
Company A's relevant cost for the old machine is the opportunity cost that it will lose if it continues with Alternative 1 or continued use of the old machine and the additional cost for the new machine for Alternative 2. Also relevant is the variable production costs that would be incurred if the old or new machine is used.
Company A's sunk cost is the cost of the old machine minus accumulated depreciation. Sunk cost is not relevant for decision making under differential analysis.
Company A's differential analysis is a managerial tool that is used to differentiate one decision alternative from another. In this analysis, only relevant costs are considered. A relevant cost in this case is cost that its inclusion or elimination makes a difference in the decision outcome.
Answer:
Net operating loss = $(126,130)
Explanation:
Given:
Ordinary loss from operations = $77,050
Recaptured ordinary income = $5,920
Net Section 1231 loss = $55,000
Net capital loss = $7,840
Find:
Net operating loss
Computation:
Net operating loss = Ordinary loss from operations - Recaptured ordinary income + Net Section 1231 loss
Net operating loss = $77,050 - $5,920 + $55,000
Net operating loss = $(126,130)
