Question

Warner Corporation purchased a machine 7 years ago for $337,000 when it launched product P50. Unfortunately,...

Warner Corporation purchased a machine 7 years ago for $337,000 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 $326,800 or by a new model 200 machine costing $279,000. 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, the alternative of dropping product P50 and not replacing the old machine. If that were done, the $279,000 invested in the new machine could instead have been invested in a project that would have returned a total of $395,000.

Required:

1. What is the total differential cost regarding the decision to buy the model 200 machine rather than the model 300 machine?

2. What is the total sunk cost regarding the decision to buy the model 200 machine rather than the model 300 machine?

3. What is the total opportunity cost regarding the decision to invest in the model 200 machine?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

1. total differential cost = $47800 , new model 300 machine costing $326,800 o new model 200 machine costing $279,000,difference between these two cost is $47800 (326800 - 279000)

2.  total sunk cost=$337,000 (7 years ago purchased machine) ,now this machine has broken down and cannot be repaired and not cost is not recoverable ,so it is a sunk cost (which are not recoverable once its incurred)

3. total opportunity cost  = $395,000, opportunity cost is foregone benefits or returns of an alternative in order to avail next best alternatives

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Warner Corporation purchased a machine 7 years ago for $398,000 when it launched product P50. Unfortunately,...
Warner Corporation purchased a machine 7 years ago for $398,000 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 $389,350 or by a new model 200 machine costing $339,600. 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,...
13. Management of Childers Corporation is considering whether to purchase a new model 370 machine costing...
13. Management of Childers Corporation is considering whether to purchase a new model 370 machine costing $447,000 or a new model 240 machine costing $402,000 to replace a machine that was purchased 7 years ago for $435,000. The old machine was used to make product M25A until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model 240 machine. It has less capacity than the new model 370 machine, but...
3. Lagle Corporation has provided the following information: Cost per Unit Cost per Period Direct materials...
3. Lagle Corporation has provided the following information: Cost per Unit Cost per Period Direct materials $ 5.20 Direct labor $ 3.80 Variable manufacturing overhead $ 1.35 Fixed manufacturing overhead $ 7,600 Sales commissions $ 1.70 Variable administrative expense $ 0.30 Fixed selling and administrative expense $ 5,000 For financial reporting purposes, the total amount of period costs incurred to sell 4,000 units is closest to: Multiple Choice $13,000 $8,000 $5,000 $7,600 4. Lagle Corporation has provided the following information:...
Weston Corporation manufactures a product that is available in both a deluxe and a regular model....
Weston Corporation manufactures a product that is available in both a deluxe and a regular model. The company has made the regular model for years; the deluxe model was introduced several years ago to tap a new segment of the market. Since introduction of the deluxe model, the company’s profits have steadily declined, and management has become concerned about the accuracy of its costing system. Sales of the deluxe model have been increasing rapidly. Overhead is applied to products on...
For many years, Thomson Company manufactured a single product called LEC 40. Then three years ago,...
For many years, Thomson Company manufactured a single product called LEC 40. Then three years ago, the company automated a portion of its plant and at the same time introduced a second product called LEC 90 that has become increasingly popular. The LEC 90 is a more complex product, requiring 0.80 hours of direct labor time per unit to manufacture and extensive machining in the automated portion of the plant. The LEC 40 requires only 0.40 hours of direct labor...
For many years, Thomson Company manufactured a single product called LEC 40. Then three years ago,...
For many years, Thomson Company manufactured a single product called LEC 40. Then three years ago, the company automated a portion of its plant and at the same time introduced a second product called LEC 90 that has become increasingly popular. The LEC 90 is a more complex product, requiring 0.60 hours of direct labor time per unit to manufacture and extensive machining in the automated portion of the plant. The LEC 40 requires only 0.20 hours of direct labor...
Expand Your Critical Thinking 7-1 Aurora Company is considering the purchase of a new machine. The...
Expand Your Critical Thinking 7-1 Aurora Company is considering the purchase of a new machine. The invoice price of the machine is $109,000, freight charges are estimated to be $3,000, and installation costs are expected to be $5,000. Salvage value of the new equipment is expected to be zero after a useful life of 5 years. Existing equipment could be retained and used for an additional 5 years if the new machine is not purchased. At that time, the salvage...
Question 3. Activity-Based Costing (ABC)   (20 marks) This question builds on prior studies and relates to...
Question 3. Activity-Based Costing (ABC)    This question builds on prior studies and relates to learning material and objectives from Topic 6. Jupiter Australasia Ltd owns Victory Mowers a manufacturer of gardening equipment which is sold domestically within Australia and to an increasing export market. Victory Mowers manufactures two different models of lawnmowers: the cheaper ‘Lawnmaster’ and the environmentally-friendly and more expensive ‘Green Machine’. A dispute has arisen between senior management at Victory Mowers over the strategic direction of the...
For many years Futura Company has purchased the starters that it installs in its standard line...
For many years Futura Company has purchased the starters that it installs in its standard line of farm tractors. Due to a reduction in output, the company has idle capacity that could be used to produce the starters. The chief engineer has recommended against this move, however, pointing out that the per unit cost to produce the 65,000 starters needed would be greater than the current $11.00 per unit purchase price:     Per Unit Total   Direct materials $ 5.00   Direct labor...
For many years Futura Company has purchased the starters that it installs in its standard line...
For many years Futura Company has purchased the starters that it installs in its standard line of farm tractors. Due to a reduction in output, the company has idle capacity that could be used to produce the starters. The chief engineer has recommended against this move, however, pointing out that the per unit cost to produce the 40,000 starters needed would be greater than the current $8.40 per unit purchase price:     Per Unit Total   Direct materials $ 3.10   Direct labor...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT