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E Reade ?Chapter 1 Hom ewor GSign In or Sign UpIc O hos to solve direct a a chapter 1 Homex ( MHE Reader ? ? https:// pter 1 Homework 5 Exercise 1-16 Cost Classifications for Decision Making [LO1-5) Warner Corporation purchased a machine 7 years ago for $377000 when it launched product P50 Unfortunacely, this machine has broken down and cannot be repaired The machine could be replaced by a new model 300 machine costing 5369,300 or by a new model 200 machine costing $326.400 Management has decided to buy the model 200 machine. It has less capacity than the model 300 machine, but its capacity is suficient to continue making product PSO. Management also considered, but rejected, the aternative of dropping product P50 and not replecing the old machine. If that were done, the $326,400 invested in the new machine could nstend have been invested in a project that would have returmed a botal of $428,000 Required Refemis1 1. What is the total difterential cos regarding the decision so buy the model 200machine rather than the model 300 machine? 2. Whot is the sotal sunk cost regarding the decision to buy the model 200 machine rather than the model 300 machine? 3 What is the total opportunity cost regarding the decision to invest in the model 200 machine? 0???@ -1

Explanation / Answer

Differential cost =

$369,300 - $326,400 = $42,900

1

Differential cost =

$369,300 - $326,400 = $42,900

2 The $377,000 cost of the old machine is a sunk cost. 3 The $428,000 return from alternative investment is an opportunity cost

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