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Removing a machine costs $900 to restore the factory site, and that amount is payable whether the machine is leased out or sold. How is the $900 treated?
AExcluded, since it arises under both options
BAdded to the lease option only, as a cost
CAdded to the sale option only, as a cost
DSplit evenly between the two options shown
Answer & Solution
Correct answer: A. Excluded, since it arises under both options
1. A differential analysis keeps only amounts that differ between the alternatives.
2. The $900 restoration cost falls due under both leasing and selling.
3. Charging it to both options would move each income figure by the same $900.
4. The gap between them, and therefore the decision, would be unchanged.
5. It is cleaner to leave the $900 out altogether.
6. Loading it onto one option only would falsely tilt the comparison towards the other.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 9.4 Lease or Sell Equipment_
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