Chapter 11, Problem 11.22E

Relevant and irrelevant costs. Answer the following questions.

1. 1. Robinson Computers makes 5,700 units of a circuit board, CB76, at a cost of $230 each. Variable cost per unit is $180 and fixed cost per unit is $50. Peach Electronics offers to supply 5,700 units of CB76 for $210. If Robinson buys from Peach, it will be able to save $20 per unit in fixed costs but continue to incur the remaining $30 per unit. Should Robinson accept Peach’s offer? Explain.
2. 2. RT Manufacturing is deciding whether to keep or replace an old machine. It obtains the following information:

	Old Machine	New Machine
Original cost	$10,800	$8,800
Useful life	9 years	5 years
Current age	4 years	0 years
Remaining useful life	5 years	5 years
Accumulated depreciation	$4,800	Not acquired yet
Book value	$6,000	Not acquired yet
Current disposal value (in cash)	$2,800	Not acquired yet
Terminal disposal value (5 years from now)	$0	$0
Annual cash operating costs	$18,000	$15,000

RT Manufacturing uses straight-line depreciation. Ignore the time value of money and income taxes. Should RT Manufacturing replace the old machine? Explain.