Question

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 50 units per day at a cost of $6.50 per unit, whereas other similar machines are producing twice that much. The units sell for $8.50. Sales are equal to production on these units, and production runs for 260 days each year. The replacement machine would cost $55,000 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 net loss of $3100

I calculated a net loss of $3100, but it was wrong.

Answer 1