The managers of Lennox Company must decide which of two mill blade grinders-Y or Z-to buy. The grinders have the same purchase price but different revenue and cost characteristics. The company currently owns Grinder X, which it bought three years ago for $15,000 and which has accumulated depreciation of $9,000 and a book value of $6,000. Grinder X is now obsolete as a result of advances in technology and cannot be sold or traded in.

The accountant has collected the following annual revenue and operating cost estimates for the two new machines:

1. Identify the relevant data in this problem.
2. Prepare an incremental analysis to aid the managers in their decision.
3. Should the company purchase Grinder Y or GrinderZ?

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Grinder Y Grinder Z Increase in revenue Increase in annual operating costs S16,000 $20,000 Direct materials Direct labor Variable overhead Fixed overhead (depreciation included 4,800 3,000 2,100 5,000 4,800 4,100 3,000 5,000