1) Differential cost | |||
cost of 300 machine | 373650 | ||
less: cost of 200 machine | 342000 | ||
Differential cost | 31650 | ||
2) sunk cost | |||
cost of old machine | 383000 | ||
3) opportunity cost | |||
alternative investment opportunity | 445600 |
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Warner Corporation purchased a machine 7 years ago for $383,000 when it launched product P50. Unfortunately,...
Warner Corporation purchased a machine 7 years ago for $342,000 when it launched product P50. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 300 machine costing $334,550 or by a new model 200 machine costing $300,200. Management has decided to buy the model 200 machine. It has less capacity than the model 300 machine, but its capacity is sufficient to continue making product P50. Management also considered, but rejected,...
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