Mailman Company Is Considering the Replacement of a Machine That

question 30

Essay

Mailman Company is considering the replacement of a machine that is presently used to produce its single product. The following data are available: $\begin{array}{lll}&& \text { Replacement } \\&\text { Old Machine } & \text { Machine }\\\text { Original cost } & \$ 210,000 & \$ 40,000 \\\text { Useful lif e in years } & 12 & 7 \\\text { Current age in years } & 5 & 0 \\\text { Book value } & \$ 65,000 & - \\\text { Disposal value now } & \$ 30,000 & - \\\text { Disposal value in 7 years } & 0 & 0 \\\text { Annual cash op erating } & \$ 10,000 & \$ 9,000\\ \text { costs}\end{array}$ Required:
Ignoring income taxes, prepare a cost comparison of all relevant items for the next seven years together. Indicate the best alternative for Mailman Company.

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Definitions:

Fixed and Variable

Costs or expenses that a company may incur, with fixed costs being constant regardless of activities, and variable costs fluctuating with business activity levels.

Separation Methods

Techniques used in chemistry and manufacturing to divide components of mixtures into individual constituents, such as distillation and filtration.

Sales Mix

The sales mix is the proportion of different products or services that a company sells, influencing overall profitability.

Break-even Point

The production level or sales volume at which total revenues equal total expenses, resulting in no net profit or loss.