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Management Accounting - Relevant costing for investments

I'm having a problem with a question that has been set for us to look at. Our lecturer revealed that it is a similar style question that we 'may' face in our final exam, so I realise its importance. Unfortunately I am lost as to how to tackle this question but nevertheless I have made a complete and thorough attempt at completing it before I have submitted this, and would like some practical guidance as to how to complete this sort of question.

It is my final semester and i have a graduate position on offer to me next year pending the completion of my degree, so it is important that I understand what I am doing. I am attaching 3 files. One file contains the actual question. Another contains my solution (on spreadsheet) and the final file contains the reasons why I got the figures I did and the assumptions I made

Thank you for your assistance.


Solution Preview

If you can't read the solution properly, please refer to the attached MSWORD file.

Key points in the calculation:
· It's very important to include the opportunity cost of forgoing the revenue from cardiac care rooms due to utilising those telemetry units. The amount can be calculated by:
Number of Beds used each year* Cardiac care rooms average rate ($300 per day)
Such amount could be revenue if ...

Solution Summary

The relevant costings for investment for management accounting is examined. The inflation rate and different decisions are determined.