The Enhanced Products Division of Forrest Industries makes ceramic pots that are used to hold large decorative plants. During the current year, the division produced 10,000 pots and incurred the following costs:
*The equipment was purchased for $150,000 and has a current book value of $120,000, remaining useful life of four years, and a zero salvage value. If the company does not use the equipment, it can be leased for $8,000 per year.**Includes supervisors' salaries and rent for manufacturing plant. Required:The division is considering replacing the equipment used to manufacture its ceramic pots. Replacement equipment can be purchased at a price of
$200,000. The new equipment, which is expected to last 4 years and have a salvage value of $20,000, will reduce unit-level labor costs by 25 percent. Assuming the division desires to maintain its production and sales at 10,000 ceramic pots per year, prepare a schedule that shows the relevant cost of operating the existing equipment versus the cost of operating the new equipment. Should the existing equipment be replaced? Why or why not?
What will be an ideal response?
The relevant costs of using the old equipment versus the new equipment are the costs that differ between the two alternatives:
Because the relevant costs of purchasing and operating the new equipment are less than the cost of operating the old equipment, the equipment should be replaced.
You might also like to view...
Joseph is a physician. His state's licensing agency has received a large number of complaints about him, and recently two of his patients have mysteriously died while under his care
The licensing agency revokes his license to practice medicine in a summary proceeding without a hearing. a. Summary protective actions are always per se violative of equal protection. b. Summary protective actions are always per se violative of due process. c. Summary protective actions are not per se violative of equal protection if an immediate post-action hearing is conducted. d. Summary protective actions are not per se violative of due process if an immediate post-action hearing is conducted.
Value engineering is ______.
a. used to improve, at a minimum cost, the functionality of a product without affecting its existing functions and standards b. used to completely analyze and improve the value of all of the components used to develop a product from its design to its final delivery c. used to design a product with a view to meet the requirements for a new market d. used to analyze the process by which market requirements may be satisfied
Which of the following is an example of an efficient manufacturing technique?
A. cutting inventory levels B. increasing the amount of time to manufacture products C. increasing product reject rates D. meeting customers' rigorous demand
What would be the driving force behind the adoption of such technological products?
What will be an ideal response?