Waterways is considering the replacement of an antiquated machine that has been slowing down production because of breakdownsand added maintenance. The operations manager estimates that this machine still has 2 more years of possible use. The machineproduces an average of 60.00 units per day at a unit cost of $6.80, whereas other similar machines are producing twice that much. Theunits sell for $9.00. Sales are equal to production on these units, and production runs for 260 days each year. The replacement machinewould cost $71,940 and have a 2-year life.Given the information above, what are the consequences of Waterways replacing the machine that is slowing down productionbecause of breakdowns?Replacing the machine will result in anet lossof $. Waterwaysshouldkeep the old i

To determine whether Waterways should replace the old machine, let's calculate the costs and…

Answered: Waterways is considering the…

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter8: Tactical Decision-making And Relevant Analysis

Section: Chapter Questions

Problem 54P

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At Stardust Gems, a faux gem and jewelry company, the setting department is a bottleneck. The company is considering hiring an extra worker, whose salary will be $67,000 per year, to ease the problem. Using the extra worker, the company will be able to produce and sell 9,000 more units per year. The selling price per unit is $20. The cost per unit currently is $15.85 as shown: What is the annual financial impact of hiring the extra worker for the bottleneck process?
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 50.00 units per day at a unit cost of $6.80, whereas other similar machines are producing twice that much. The units sell for $9.30. Sales are equal to production on these units, and production runs for 260 days each year. The replacement machine would cost $68,000 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 of $ Waterways keep the old
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 $6.60 per unit, whereas other similar machines are producing twice that much. The units sell for $9.10. Sales are equal to production on these units, and production runs for 260 days each year. The replacement machine would cost $67,900 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 of S Waterways keep the old ma
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 $8.30. Sales are equal to production on these units, and production runs for 260 days each year. The replacement machine would cost $49,800 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 $ . Waterways should keep the old machin
Higgins Machine Tools, Inc. is currently manufacturing one of its products on a hydraulic stamping press machine. The unit cost of the product is $16, and in the past year 4,000 units were produced and sold for $24 each. It is expected that the future demand of the product and the unit price will remain steady at 4,000 units per year and $24 per unit, respectively.Defender: The machine has a remaining useful life of three years and could be sold on the open market now for $8,000. Three years from now, thethe machine is expected to have a salvage value of $1,800.Challenger: A new machine would cost $40,000, and the unit manufacturing cost on the new machine is projected to be $14. The new machine has an expected economic life of five years and an expected salvage of $8,000. The appropriate MARR is 10%. The firm does not expect a significant improvement in the machine's technology to occur, and it needs the service of either machine for an indefinite period of time.(a) Compute the cash…
Sweet Wave Bakery has a machine that is continuing to break down and requires constant maintenance. The operations manager is estimating that this machine has only 2 more years of life. The machine produces an average of 50 units per day at a cost of $6.50 per unit. The bakery is considering replacing this machine with a similar machine. The new machine would cost $55,000 with a 2 year life but could produce twice the production of the existing machine. The units sell for $8.50. Sweet Wave operates the line with this machine 260 days each year. The sales are equal to production on this line. Instructions: Given the information above, what are the consequences of Sweet Wave replacing the maching that is slowing down production because of breakdowns? Revenues (Retain): Sell price x units per day x 260 days x 2 years Production Costs (Retain): Cost per unit x units per day x 260 days x 2 years Revenues (Replace): Sell price x Units per day (x2) x 260 days x 2 years Production Costs…
Concord Pix currently uses a six-year-old molding machine to manufacture silver picture frames. The company paid $95,000 for the machine, which was state of the art at the time of purchase. Although the machine will likely last another ten years, it will need a $12,000 overhaul in four years. More important, it does not provide enough capacity to meet customer demand. The company currently produces and sells 9.000 frames per year, generating a total contribution margin of $92,500. Martson Molders currently sells a molding machine that will allow Concord Pix to increase production and sales to 12,000 frames per year. The machine, which has a ten-year life, sells for $135,000 and would cost $10,000 per year to operate. Concord Pix's current machine costs only $8,000 per year to operate. If Concord Pix purchases the new machine, the old machine could be sold at its book value of $5,000. The new machine is expected to have a salvage value of $19,900 at the end of its ten-year life. Concord…
As a result of improvements in product engineering, United Automation is able to sell one of its two milling machines. Both machines perform the same function but differ in age. The newer machine could be sold today for $63,500. Its operating costs are $21,800 a year, but in five years the machine will require a $19,100 overhaul. Thereafter operating costs will be $30,900 until the machine is finally sold in year 10 for $6,350. The older machine could be sold today for $25,900. If it is kept, it will need an immediate $24,500 overhaul. Thereafter operating costs will be $34,000 a year until the machine is finally sold in year 5 for $6,350. Both machines are fully depreciated for tax purposes. The company pays tax at 35%. Cash flows have been forecasted in real terms. The real cost of capital is 13%. a. Calculate the equivalent annual costs for selling the new machine and for selling the old machine. (Do not round intermediate calculations. Enter your answers as a positive value rounded…
Searching for ways to cut costs and increase profit, one of the industrial engineers at Home Comfort Furniture Manufacturers, Inc. determined that the equivalent annual worth of an existing machine over its remaining useful life of 2 years is $-71,000 per year. The IE also determined that used machines like the one currently in use are not available any longer, but the defender can be replaced with a challenger that is more advanced. It will have an AW of $-83,550 if it is kept for 2 years or less, $-75,075 if it is kept between 3 and 4 years, and $-65,000 if it is kept for 5 to 10 years. If the company uses a specified 3-year planning horizon and an interest rate of 14% per year. a) Determine when the company should replace the machine. b) Determine the AW for the next 3 years. a) The company should [Keep the machine for 2 years and then replace with the challenger b) The AW for the next 3 years is $
Searching for ways to cut costs and increase profit, one of the industrial engineers at Home Comfort Furniture Manufacturers, Inc. determined that the equivalent annual worth of an existing machine over its remaining useful life of 2 years is $70,000 per year. The IE also determined that used machines like the one currently in use are not available any longer, but the defender can be replaced with a challenger that is more advanced. It will have an AW of $80,000 if it is kept for 2 years or less, $75,000 if it is kept between 3 and 4 years, and $65,000 if it is kept for 5 to 10 years. If the company uses a specified 3-year planning horizon and an interest rate of 15% per year, determine (a) when the company should replace the machine, and (b) the AW for the next 3 years.
Chattanooga Development Company wants to evaluate replacing an older machine requiring significant maintenance which delays production. The older machine can be used for 2 more years of production. The Company could buy a replacement machine at a cost of $55,000 and the new machine would have a 2-year life. The units produced by the machine have a sales price of $8.50. The older machine produces an average of 50 units per day at a cost of $6.50 per unit. The new machine would produce twice as many units at the same cost. Sales units and production units are the same volume, and the machines are operated for 260 days each year. INSTRUCTIONS: Prepare the analysis to evaluate whether the Company should retain or replace the machine. Indicate what the Company should do.
Smithson Mechanical Ltd. is considering replacing an existing hoist with a newer, more efficient piece of equipment. The existing hoist has a remaining useful life of 5 years. The new hoist costs CAD 46,000 to purchase and install and alsohas an estimated life of 5 years. It is a Class 5 asset with a CCA rate of 10.0% The company currently produces 8,500 units per year. The new hoist is expected to reduce variable costs by CAD 1.30 per unit and fixed costs by CAD 3,500 year. An increased investment in new working capital of CAD 4,500 will also be required to support the new machine. The existing hoist can currently be sold for CAD 15,000. At the end of 5 years, the existing hoist will have a salvage value of CAD 2,000. The new hoist can be sold for CAD 11,000 at the end of the 5-year period. The project’s RRR is 7.0% and its tax rate is 25.0%. The present value of the net initial cash flows of this project today is closest to: a) CAD -31,090. b) CAD -35,500. c) CAD -43,957. Net…

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