Question: Emerson Trotman production manager for Fabricut invested in computer controlled production

Emerson Trotman, production manager for Fabricut, invested in computer-controlled production machinery last year. He purchased the machinery from Advanced Design at a cost of $2 million. A representative from Advanced Design recently contacted Emerson because the company has designed an even more efficient piece of machinery. The new design would double the production output of the year-old machinery but cost Fabricut another $3 mil- lion. The old machinery was installed by an engineering firm; the same firm will be required to install the new machinery. Fixed selling costs would not increase if Fabricut purchased the new machinery, but variable selling costs would increase. Fabricut paid off the notes payable it used to pay for the machinery last year. If Fabricut purchases the new machinery, it will sign a new notes payable. Maintenance costs for the new machinery would be the same as for the current machinery. If Fabricut purchases the new machinery, it can trade in the old machinery; Advanced Design will credit Fabricut’s account for the trade-in value.
In the following chart, indicate whether each of the costs described would be relevant or not to Fabricut’s decision about whether to purchase the new machinery or to keep using the older machinery.

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  • CreatedApril 30, 2015
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