Management of NUBD Corporation is considering whether to purchase a new model L37 machine costing P360,000 or a new model L20 machine costing P340,000 to replace a machine that was purchased 7 years ago for P348,000. The old machine was used to make product LUV until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model L20 machine. It has less capacity than the new model L37 machine, but its capacity is sufficient to continue making product LUV. Management also considered, but rejected, the alternative of simply dropping product LUV. If that were done, instead of investing P340,000 in the new machine, the money could be invested in a project that would return a total of P225,000. In making the decision to invest in the model L20 machine, the opportunity cost was:
Management of NUBD Corporation is considering whether to purchase a new model L37 machine costing P360,000 or a new model L20 machine costing P340,000 to replace a machine that was purchased 7 years ago for P348,000. The old machine was used to make product LUV until it broke down last week. Unfortunately, the old machine cannot be repaired.
Management has decided to buy the new model L20 machine. It has less capacity than the new model L37 machine, but its capacity is sufficient to continue making product LUV.
Management also considered, but rejected, the alternative of simply dropping product LUV. If that were done, instead of investing P340,000 in the new machine, the money could be invested in a project that would return a total of P225,000.
In making the decision to invest in the model L20 machine, the
Step by step
Solved in 3 steps
