Required: GH Company is trying to decide whether to replace a current piece of machinery with a new machine. Using the below data, determine the relevant costs of the old machine and the new machine. Should GH Company purchase the new machine? Old Machine New machine Original cost 100,000 Accumulated depreciation (50,000) Book value 50,000 Market value (now) 25,000 30,000 Salvage value (in 5 years) 5,000 8,000 Annual depreciation expense 11,000 Operating expenses Per year 9,000 4,500 Times number of years 4 4 Total operating expenses 36,000 18,000

Problem 1 Required: Identify each of the following as either a direct or indirect cost. (20 points) Material used in production Salary of manufacturing supervisor Wages of manufacturing worker Telephone costs Rent Direct or Indirect? Direct Direct Direct Indirect Indirect Problem 2 Required: GH Company is trying to decide whether to replace a current piece of machinery with a new machine. Using the below data, determine the relevant costs of the old machine and the new machine. Should GH Company purchase the new machine? (30 points) Original cost Accumulated depreciation Book value Market value (now) Salvage value (in 5 years) Annual depreciation expense Operating expenses Per year Times number of years Total operating expenses Old Machine 100,000 (50,000) 50,000 New machine 25,000 5,000 11,000 30,000 8,000 9,000 4 36,000 4,500 4 18,000