Question

Question 8 --/1 View Policies Current Attempt in Progress Waterways is considering the replacement of an antiquated machine that has been slowing down production because of breakdowns and added maintenance. The operations manager estimates that this machine still has 2 more years of possible use. The machine produces an average of 60 units per day at a cost of $6.10 per unit, whereas other similar machines are producing twice that much. The units sell for $8.30. Sales are equal to production on these units, and production runs for 260 days each year. The replacement machine would cost $71,840 and have a 2-year life. Given the information above, what are the consequences of Waterways replacing the machine that is slowing down production because of breakdowns? Replacing the machine will result in a of $ .Waterways keep the old machine. net loss e Textbook and Media net profit should not should

Answer 1

A 1 Replacement Analysis: 3 Sales revenue 4 Less: Cost of production 5 Less: Cost of machine 6 Net income (loss) Increase (decrease) in income after replacement Old Machine New Machine $258,960 $517,920 ($190,320) ($380,640) ($71,840) $68,640 $65,440 (S3,200) SO Replacing the machine will result in a net loss of $3,200. Waterways should keep the old 9 machine. Calculations are shown below: A i Replacement Analysis: Old Machine New Machine 3 Sales revenue =60*(260*2)*8.3 =(60*2)*(260*2)*8.3 4 Less: Cost of production =-60*(260*2)*6.1 =-(60*2)*(260*2)*6.1 5 Less: Cost of machine -71840 6 Net income (loss) =SUM(B3:B5) =SUMC3:05) 7 Increase (decrease) in income after replacement =C6-B6 Replacing the machine will result in a net loss of $3,200. Waterways should keep the old machine.