SpectroGlass Company manufactures glass for office buildings in Arizona and Southern California. As a result of age and wear, a critical machine in the production process has begun to produce quality defects. SpectroGlass is considering replacing the old machine with a new machine, either brand A or brand B. The manufacturer of each machine has provided SpectroGlass these data on the cost of operation of its machine at various levels of output:

	Machine A	Machine B
Output (square yards)	Estimated Total Costs	Estimated Total Costs
4,000	$54,600	$70,000
7,000	$78,800	$100,000
9,000	$90,300	$115,000
14,000	$114,900	$137,000
16,000	$132,400	$146,000
24,000	$210,000	$192,000

Required
1. Use the High-Low method to determine the cost equations for each machine, and then to determine if SpectroGlass's output is expected to be 22,000 square yards, which machine should it purchase? At 15,000 square yards? Is the High-Low method useful here? Why or why not?
2. As a cost analyst at SpectroGlass, you have been assigned to complete requirement 1. A production supervisor comes to you to say that the nature of the defect is really very difficult to detect and that most customers will not notice it, so he questions replacing it. He suggests that you modify your calculations to justify keeping the present machine to keep things the way they are and save the company some money. What do you say?
3. Assume that machine A is manufactured in Germany and machine B is manufactured in Canada. As a U.S.-based firm, what considerations are important to SpectroGlass, in addition to those already mentioned in your answer to requirement 1?

Transcribed Image Text:

wear, a critical m achine in the production process has begun to produce quality defects. SpectroGlass is considering replacing the old machine with a new machine, either brand A or brand B. The manufacturer of each machine has provided SpectroGlass these data on the cost of operation of its machine at vari ous levels of output: