Reference no: EM13878171

Text Book- Cost Management - A strategic Emphasis| 6th edition

12-53. Sensitivity Analysis Use the information in problem 12-53 to answer the following questions:

Required

1. What is the maximum machine operating cost of the overhauled AccuDril for the replacement decision to be an incorrect financial decision?

2. Use the Goal Seek function in Excel to determine the maximum amount that the annual after-tax operat- ing costs for the new machine can be before changing the decision.

3. New technologies make it possible to overhaul this machine now for $80,000. Both the overhaul cost and the undepreciated cost (book value) of the existing asset are to be depreciated over two years. The overhaul will improve its productivity by 20 percent and reduce the cost of a major overhaul two years from now to $30,000. All overhaul costs will be depreciated using the straight-line method. With either overhaul, the machine will have no salvage value. Either overhaul can be scheduled during regular main- tenance and will not affect production. Despite the old saying, "If it ain't broke, don't fix it," should you overhaul it now or wait for two years to do the overhaul as planned originally, assuming that no funds are currently available to purchase RoboDril 1010K?

4. Performing the overhaul now also improves product quality. Management believes that the quality improvement is rather subtle and very difficult to quantify. Should the firm overhaul now?