Coffee Culture Company€™s managers must decide which of two coffee 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 $10,000 and which has accumulated depreciation of $9,000 and a book value of $1,000. 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 Grinder Z? Explain youranswer.

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Grinder Y Grinder Z Increase in revenue Increase in annual operating costs: $15,000 $18,000 Direct materials Direct labor Variable overhead Fixed overhead (depreciation included) 4,500 3,000 2,000 4,000 4,500 4,000 3,000 4,000