Freestone Company is considering renting Machine Y to replace Machine X.It is expected that Y will waste less direct materials than does X.If Y is rented,X will be sold on the open market.For this decision,which of the following factors is (are)relevant?
I.Cost of direct materials used
II.Resale value of Machine X
A)Only I
B)Only II
C)Both I and II
D)Neither I nor II

Question

Freestone Company is considering renting Machine Y to replace Machine X.It is expected that Y will waste less direct materials than does X.If Y is rented,X will be sold on the open market.For this decision,which of the following factors is (are)relevant? 
I.Cost of direct materials used
II.Resale value of Machine X
A)Only I
B)Only II
C)Both I and II
D)Neither I nor II

Quizplus · Accepted Answer

Both factors are relevant to the decision. The cost of direct materials will impact the cost savings from wasting less materials with Machine Y. The resale value of Machine X will also affect the overall cost of renting Machine Y, as selling X on the open market will likely offset some of the rental costs. Therefore, both factors should be considered when making the decision.

Freestone Company Is Considering Renting Machine Y to Replace Machine