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In the last 6 months, demand for one of Appleby Companys products has dropped off...

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Accounting

In the last 6 months, demand for one of Appleby Companys 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/year.

Relevant costs include all of the following except:

Question 13

a.

Variable production costs of $65/unit

b.

Licensing royalties of 5% of gross product revenues

c.

Consultant fees of $50,000

d.

Additional annual operating costs or $30,000/year

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