Should replace meat grinder patty shaper machine

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Reference no: EM131202345

Swenson's Meats is considering whether it should replace a meat grinder patty shaper machine. The new machine will produce 25% more hamburger patties than the old machine in the same amount of time. (This machine is the bottleneck of the hamburger patty process for Swenson's.) The purchase of the new machine will cause fixed selling costs to increase, but variable selling costs will not be affected. The new machine will require installation by a specialty engineering firm. If the new machine is purchased, the old machine can be sold to an overseas meat processing company. The old machine requires frequent (quarterly) repairs and maintenance to keep it running. The new machine will require maintenance only once per year. The new machine will 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 notes payable for the new machine. The note payable that was used to purchase the old machine was fully paid off two years ago.

For each of the following costs, indicate 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. You can place an "x" under the appropriate column.

Item Relevant Not Relevant

(a) Cost of new machine

(b) Cost of old 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

Reference no: EM131202345

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