Q251SE - Horngren'S Financial And Managerial Accounting

Question

You are trying to decide whether to trade in your inkjet printer for a more recent model. Your usage pattern will remain unchanged, but the old and new printers use different ink cartridges. 

Indicate if the following items are relevant or irrelevant to your decision:

a. The price of the new printer 

b. The price paid for the old printer 

c. The trade-in value of the old printer 

d. Paper cost 

e. The difference between ink cartridges’ costs

Step-by-Step Solution

Answer

Answer

Step-by-Step Solution Step 1: Meaning of Purchase Decisions

Purchase decision refers to a process in which an individual or a business concern identifies its needs and chooses the best alternative available in the market after computing the associated costs. 

Step 2: Relevancy of the price of the new printer

The price of the new printer is relevant because this will facilitate the management to make decisions associated with the purchase of the printer. The administration will compute the cost of the new printer and will look for its alternative. 

Step 3: Irrelevancy of the price paid for the old printer

The price paid for the old printer is irrelevant because this will not be linked with the purchase decisions associated with the new printer and does not impact the decision of the management.

Step 4: Relevancy of the trade-in value of the old printer

The trade-in value of the old printer is relevant because it will contribute to reducing the cost of the new printer to the extent of the trade-in value of the old printer. 

Step 5: Irrelevancy of paper cost

Cost of paper is irrelevant because paper usage will remain the same as the old printer. Therefore, the cost of paper will not impact the management’s decision associated with the purchases of a new printer. 

Step 6: Relevancy of the difference between ink cartridges’ costs

The difference between the costs of the ink cartridges is relevant because it will facilitate the management to compute the differences in the prices of ink used by the old and new printer.