The Tech Mech Company produces and sells 6,000 modular computer desks per year at a selling price
Question:
All equipment costs will continue to be depreciated on a straight-line basis. For simplicity, ignore income taxes and the time value of money.
REQUIRED
1. Should Tech Mech upgrade its production line or replace it? Show your calculations.
2. Now suppose the one-time equipment cost to replace the production equipment is some-what negotiable. All other data are as given previously. What is the maximum one-time equipment cost that Tech Mech would be willing to pay to replace the old equipment rather than upgrade it?
3. Assume that the capital expenditures to replace and upgrade the production equipment areas given in the original exercise, but that the production and sales quantity is not known. For what production and sales quantity would Tech Mech
(a) Upgrade the equipment or
(b) Replace the equipment?
4. Assume that all data are as given in the original exercise. Dan Doria is TechMech€™s manager, and his bonus is based on operating income. Because he is likely to relocate after about a year, his current bonus is his primary concern. Which alternative would Doria choose? Explain.
Step by Step Answer:
Cost Accounting A Managerial Emphasis
ISBN: 978-0133392883
6th Canadian edition
Authors: Horngren, Srikant Datar, George Foster, Madhav Rajan, Christ