Question

ust before it is about to sell the​ equipment, Jones receives a new order. It can take the new order if it keeps the old equipment. Is there a cost to taking the order and if​ so, what is​ it? Explain.​ (Assume the new order will consume the remainder of the​ machine's useful​ life.) ​(Select the best choice​ below.) A. ​Yes, the cost of taking the order is the lost​ after-tax cash flow of $163,383 from selling the machine. B. ​Yes, the cost of taking the order is the extra depreciation on the machine. C. ​No, Jones already owns the​ machine, so there is no cost to using it for the order. D. ​Yes, the cost of taking the order is the lost $85,824 in book value.

Answer 1

A. ​Yes, the cost of taking the order is the lost​ after-tax cash flow of $163,383 from selling the machine.

Step-by-step explanation:

This question is about opportunity costs. Opportunity costs are benefits lost or extra costs associate to choosing one activity or investment over another alternative.

If Jones decides to accept the special order, he will not be able to sell the machine, so he will lose the $163,383 that he could have earned by selling it (that is the opportunity cost of accepting the special order).