Waterways is considering the replacement of an antiquated machine that has been
ID: 2456990 • Letter: W
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?
Explanation / Answer
Solution :
old
new
Increase/
(decrease)
unit sales (unit per day*no of days*no of year)
26000
52000
26000
sellin price
8.5
8.5
cost
6.5
6.5
sales (26000*8.5),(52000*8.5)
221000
442000
221000
cost
169000
338000
169000
replacement cost
0
55000
55000
net Profit
52000
49000
-3000
Replacing the machine will result in a net profit of $. 49000 Waterways should keep the old machine.
old
new
Increase/
(decrease)
unit sales (unit per day*no of days*no of year)
26000
52000
26000
sellin price
8.5
8.5
cost
6.5
6.5
sales (26000*8.5),(52000*8.5)
221000
442000
221000
cost
169000
338000
169000
replacement cost
0
55000
55000
net Profit
52000
49000
-3000
Replacing the machine will result in a net profit of $. 49000 Waterways should keep the old machine.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.