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Malloy Industries manufactures air conditioners. The machines used to manufacture the air conditioners usually are insulated with asbestos. Because of health risks associated with asbestos, the Occupational Safety and Health Administration (OSHA) lowered the permissible level of asbestos fibers in the air. In addition, employers who have asbestos-insulated buildings or machines are required to moni- tor the amount of asbestos fibers in the air to ensure that they do not exceed the permissible level. Malloy Industries, a leader in providing its employees with a safe and healthy work environment, decided to remove the asbestos insulation from its 45 machines and replace it with another insulation material. The company deter- mined that it would be less expensive to remove the asbestos insulation from its machines than to monitor asbestos levels on a daily basis. The company has found that the replacement material is 10% less efficient than the asbestos insulation. Should Malloy Industries capitalize or deduct the expense of replacing the asbestos insulation? Explain.
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