Question: SMITH Industries is considering replacing an existing machine with a new and faster machine that will produce a more reliable product. The switch to a

SMITH Industries is considering replacing an existing machine with a new and faster machine that will produce a more reliable product. The switch to a new machine will result in a superior product and will allow Smith to increase its sale price for the product. The switch will also increase fixed costs, and the variable cost per unit will decrease. The cost and revenue estimates are as follows:

Old Machine New Machine

Annual fixed costs $120,000 $200,000

Variable cost per unit $30 $26

Sales price per unit $40 $46

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