Management of National Co. is considering whether to purchase a new model MX1 machine costing P460,000 or a new model MY2 machine costing P430,000 to replace a machine that was purchased 7 years ago for P258,000. The old machine was used to make product L360 until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model MY2 machine. It has less capacity than the new model MX1 machine, but its capacity is sufficient to continue making product L360. Management also considered, but rejected, the alternative of simply dropping product L360. If that were done, instead of investing P430,000 in the new machine, the money could be invested in a project that would return a total of P411,000. In making the decision to buy the model MY2 machine rather than the model MX1 machine, the differential cost was:
Management of National Co. is considering whether to purchase a new model MX1 machine costing P460,000 or a new model MY2 machine costing P430,000 to replace a machine that was purchased 7 years ago for P258,000. The old machine was used to make product L360 until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model MY2 machine. It has less capacity than the new model MX1 machine, but its capacity is sufficient to continue making product L360. Management also considered, but rejected, the alternative of simply dropping product L360. If that were done, instead of investing P430,000 in the new machine, the money could be invested in a project that would return a total of P411,000.
In making the decision to buy the model MY2 machine rather than the model MX1 machine, the differential cost was:
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
