90.2K

Verified Solution

Link Copied!

wues LION 2 (10 points) Long-term product costs are defined as the minimum we need to charge for our product to stay in business forever. Suppose our business uses a machine that needs to be replaced every four years. We bought the machine at the beginning of 2010 for 400,000 and charge our products 100,000 in annual depreciation since then. In 2012, the same machine started selling for 300,000 and it is highly likely that the price drop of 100,000 is going to be permanent. Which of the following is true about our long-term costs in 2012: O the 400,000 we paid for the machine are sunk costs and should not be allocated the price drop of 100,000 represents sunk costs and should not be allocated after 2012 example of idle workers even more difficult with overhea- warehouses, delivery trucks, co be purchased in advance (even resulting long-term commitme advance purchase) and their c What makes capacity resourc production needs. Exactly how to make a distinction between Short-term costs = opportur capacity is fixed and cannot be Long-term costs = opportunit to adjust capacity to productia Example: Suppose we buy a Products X, Y or Zin one year machine cannot be returned, and the cost of the machine st possible only after purchasing order the new machine, hire install the machine, etc Short-term costs of using one one machine hour while our machine is often idle, we sim so the short-term costs are z many Products Y and Z as we make Product X can be very profits we would have made the machine, the short-term Long-term costs of using one capacity to production need $50,000 for every 100,000 are $50,000 / 100,000 = $0. What if we need to enlarge o any decision with a horizon long-term costs should only O long-term costs will go down after we buy a new machine in 2014 O long-term costs remain constant and do not fluctuate with prices of production equipment o long-term costs go down in 2012 only if we buy the new machine depreciation is only relevant for short-term costs, long-term costs are unaffected none of these FR Ture here to search

Answer & Explanation Solved by verified expert

See Answer