Question

CraftMaster Corporation purchased a machine 7 years ago for $339,000 when it launched product X05K. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 360 machine costing $353,000 or by a new model 280 machine costing $332,000. Management has decided to buy the model 280 machine. It has less capacity than the model 360 machine, but its capacity is sufficient to continue making product X05K. Management also considered, but rejected, the alternative of dropping product X05K and not replacing the old machine. If that were done, the $332,000 invested in the new machine could instead have been invested in a project that would have returned a total of $426,000. In making the decision to buy the model 280 machine rather than the model 360 machine, the differential cost was:

Answer 1

Model 280 is $21000 cheaper.

Step-by-step explanation:

Giving the following information:

CraftMaster Corporation purchased a machine 7 years ago for $339,000 when it launched product X05K. Unfortunately, this machine has broken down and cannot be repaired.

The machine could be replaced by a new model 360 machine costing $353,000 or by a new model 280 machine costing $332,000.

We don't have any information regarding variable costs, fixed costs, useful life, etc.

The only differential cost provided is the purchase price.

Differential cost= model 360 - model 280= 353000-332000= $21000

Model 280 is $21000 cheaper.