Reference no: EM135650

Q:

Swenson's Meats is taken whether it could replace a meat grinder patty shaper machine. The new machine will produce 25 percent more hamburger patties than the old machine in the similar amount of time. (This machine is the bottleneck of the hamburger patty process for Swenson's.) The purchase of the new machine may cause fixed selling costs to increase, but variable selling costs can not be affected.

The new machine will need installation by a specialty engineering firm. If the new machine is bought, the old machine will be sold to an overseas meat processing company. The old machine needs frequent (quarterly) repairs and maintenance to keep it running. The new machine will need maintenance only once per year. The new machine can be paid for by signing a note payable with the bank that will cover the cost of the machine and its installation. Swenson's will have to pay interest monthly on the note payable for the new machine. The note payable that was used to buy the old machine was fully paid off two years ago. For each of the subsequent costs, Show whether each of the costs described would be relevant or not to Swenson's Meats' decision about whether to purchase the new machine or to keep the old machine.

a. Cost of the new machine

b. Cost of the old machine

c. Added profits from increase in production resulting from new machine

d. Fixed selling costs

e. Variable selling costs

f. Sales value of old machine

g. Interest expense on new machine

h. Interest expense on old machine

i. Book value of old machine

j. Maintenance cost of new machine

k. Repairs and maintenance costs of old machine

l. Installation costs of new machine

m. Accumulated depreciation on old machine

n. Cost per pound of hamburger

o. Installation cost of old machine