Assignment Problem: While making a financial decision, it is imperative the organisation consider all relevant costs associated with the decision.
The costs associated with MegaSaver Airways are as follows:
- £2,000,000 has already been spent to evaluate the feasibility of the project
- The annual rental costs of the new headquarter is estimated to be £300,000 per annum
- New equipment costing £1,500,000 will need to be bought and will be depreciated on a straight-line basis over ten years
- A manager who earns £100,000 per year and currently works for GoGo Airlines on a full-time basis will be required to spend 25% of his time managing the new budget airways.
State, with reason(s), if the following expenses are relevant:
- the cost of the feasibility study
- rent charged to the project
- cost of new equipment
- depreciation on the new equipment and
- manager's salary