The Following Information Relates to the Purchase of New Machine

question 84

Essay

The following information relates to the purchase of new machine being considered. $\begin{array} { l r r } & \text { New Machine } & \text { Old Machine } \\\text { Direct Material per unit } & \$ 4.32 & \$ 4.36 \\\text { Direct Labor per unit } & 4.90 & 4.95 \\\text { Variable manufacturing overhead per unit } & .36 & .37 \\\text { Variable Selling per unit } & 11.97 & 10.47 \\\text { Fixed overhead total } & 36,000 & 33,000 \\\text { Book value } & & 52,000 \\\text { Cost of new equipment (12 year life) } & 246,000 &\end{array}$ The new machine would enable the company to make 13,500 units per year. The current capacity of 12,000 is based on the maximum number of units that the old machine can produce. The company has had to turn down orders in the past few years due to this limit on capacity and estimates that it can sell as many of the product as it can produce. The sales price per unit of the product is $34.50. Determine the relevant data. Pose one addition consideration regarding this decision.

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Definitions:

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