Warner Corporation purchased a machine 7 years ago for $315,000 when it launched product P50. Unfortunately,this machine has broken down and cannot be repaired. The machine could be replaced by a new model 300machine costing $303,000 or by a new model 200 machine costing $273,000. Management has decided to buythe model 200 machine. It has less capacity than the model 300 machine, but its capacity is sufficient to continuemaking product P50. Management also considered, but rejected, the alternative of dropping product P50 and notreplacing the old machine. If that were done, the $273,000 invested in the new machine could instead have beeninvested in a project that would have returned a total of $373,000.Required:1. What is the total differential cost regarding the decision to buy the model 200 machine rather than the model300 machine?2. What is the total sunk cost regarding the decision to buy the model 200 machine rather than the model 300machine?3. What is the total opportunity cost regarding the decision to invest in the model 200 machine?1. Differential cost2. Sunk cost3. Opportunity cost

1. Total Differential Cost: The differential cost is the difference in cost between two…

Answered: Warner Corporation purchased a machine…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Warner Corporation purchased a machine 7 years ago for $350,000 when it launched product P50. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 300 machine costing $342,450 or by a new model 200 machine costing $290,800. Management has decided to buy the model 200 machine. It has less capacity than the model 300 machine, but its capacity is sufficient to continue making product P50. Management also considered, but rejected, the alternative of dropping product P50 and not replacing the old machine. If that were done, the $290,800 invested in the new machine could instead have been invested in a project that would have returned a total of $400,400. Required: 1. What is the total differential cost regarding the decision to buy the model 200 machine rather than the model 300 machine? 2. What is the total sunk cost regarding the decision to buy the model 200 machine rather than the model 300 machine? 3. What is the total…
s
Wimpod Inc, purchased a machine 8 years ago for P419,000 when it launched product M50. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new Model 500 machine costing P375,000 or a new Model 400 costing P413,000. Management decided to buy the new Model 400 machine. It has less capacity than the new Model 500 machine, but its capacity is sufficient to continue making product M50. Management also considered, but rejected, the alternative of dropping product M50 and not replacing the old machine. If that were done, the P375,000 invested in the new machine could instead have been invested in a project that would have a return total of P475,000. P is the TOTAL DIFFERENTIAL COST.
Dominik Corporation purchased a machine 5 years ago for $527,000 when it launched product M08Y. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 310 machine costing $545,000 or by a new model 240 machine costing $450,000. Management has decided to buy the model 240 machine. It has less capacity than the model 310 machine, but its capacity is sufficient to continue making product M08Y. Management also considered, but rejected, the alternative of dropping product M08Y and not replacing the old machine. If that were done, the $450,000 invested in the new machine could instead have been invested in a project that would have returned a total of $532,000. In making the decision to buy the model 240 machine rather than the model 310 machine, the sunk cost was: Multiple Choice $545,000 $450,000 $527,000 $532,000
Temblador Corporation purchased a machine 7 years ago for $319,000 when it launched product E26T. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 330 machine costing $323,000 or by a new model 230 machine costing $285,000. Management has decided to buy the model 230 machine. It has less capacity than the model 330 machine, but its capacity is sufficient to continue making product E26T. Management also considered, but rejected, the alternative of dropping product E26T and not replacing the old machine. If that were done, the $285,000 invested in the new machine could instead have been invested in a project that would have returned a total of $386,000. In making the decision to invest in the model 230 machine, the opportunity cost was: Select one: a. $386,000 b. $319,000 c. $285,000 d. $323,000
Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $502,000 or a new model 220 machine costing $443,000 to replace a machine that was purchased 11 years ago for $470,000. The old machine was used to make product I43L until it broke down last week. Unfortunately, the old machine cannot be repaired.Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product I43L.Management also considered, but rejected, the alternative of simply dropping product I43L. If that were done, instead of investing $443,000 in the new machine, the money could be invested in a project that would return a total of $487,000.In making the decision to buy the model 220 machine rather than the model 370 machine, the differential cost was: A: 59,000 B: 27,000 C: 32,000 D: 17,000
Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $511,000 or a new model 220 machine costing $471,000 to replace a machine that was purchased 7 years ago for $503,000. The old machine was used to make product I43L until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product I43L. Management also considered, but rejected, the alternative of simply dropping product I43L. If that were done, instead of investing $471,000 in the new machine, the money could be invested in a project that would return a total of $479,000. In making the decision to invest in the model 220 machine, the opportunity cost was: Multiple Choice $503,000 $471,000 $511,000 $479,000
Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $536,000 or a new model 220 machine costing $463,000 to replace a machine that was purchased 9 years ago for $484,000. The old machine was used to make product 143L until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product 143L. Management also considered, but rejected, the alternative of simply dropping product 143L. If that were done, instead of investing $463,000 in the new machine, the money could be invested in a project that would return a total of $488,000. In making the decision to buy the model 220 machine rather than the model 370 machine, the sunk cost was: Multiple Choice $484,000 $463,000 $536,000 $488,000
Management of NUBD Corporation is considering whether to purchase a new model L37 machine costing 360,000 or a new model L20 machine costing 340,000 to replace a machine that was purchased 7 years ago for 348,000. The old machine was used to make product LUV until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model L20 machine. It has less capacity than the new model L37 machine, but its capacity is sufficient to continue making product LUV. Management also considered, but rejected, the alternative of simply dropping product LUV. If that were done, instead of investing 340,000 in the new machine, the money could be invested in a project that would return a total of 250,000. In making the decision to invest in the model L20 machine, the opportunity cost was?
Please solve this MCQs Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $464,000 or a new model 220 machine costing $405,000 to replace a machine that was purchased 10 years ago for $439,000. The old machine was used to make product I43L until it broke down last week. Unfortunately, the old machine cannot be repaired.Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product I43L.Management also considered, but rejected, the alternative of simply dropping product I43L. If that were done, instead of investing $340,000 in the new machine, the money could be invested in a project that would return a total of $456,000.In making the decision to buy the model 220 machine rather than the model 370 machine, the sunk cost was: $456,000 $464,000 $439,000 $405,000
A packaging factory is considering the replacement of some equipment. The new plan is to install equipment to produce a new can that uses less energy and less metal than the old one. Current equipment was installed 5 years ago for $100 million and can be sold for $35 million. Due to obsolescence the depreciation of this equipment results in an annual depreciation of $4 million for the next years. If you keep this equipment for one more year your operating and maintenance costs will be $65 million increasing by $3 million/year each year thereafter. The new equipment will cost $130 million, with an economic life of 8 years and a salvage value of $10 million. Its operating and maintenance costs will be $49 million. For a TMAR = 15% p.a. what new equipment should be installed? Make a recommendation about it. (Answer: The solution would be to use the current equipment for another two years and then exchange it for new equipment.
Denny Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $290,000 and have a tenericals controll nortunately, the new machine would have no salvage value. The new machine would cost $48,000 per year to operate and maintain but would save $89,000 per year in labor and other costs. The old machine can be sold now for scrap for $29,000. The simple rate of return on the new machine is closest to (Ignore income taxes.):

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