Evaluating a decision to purchase equipment. The Engineering Department of the Elias Manufacturing Company has recommended a change in production methods. The change involves the purchase of a machine for $270,000.

A study of operating costs under the existing and proposed methods was made. The estimated annual operating costs that differ under the two methods are as follows.

The new equipment has a 10-year useful life with no scrap value.

Instructions 1. Compute the difference in annual net income if the proposed change in production methods is made. Assume that sales will not change and that the only additional fixed cost will be the depreciation on the new machine.
2. List other factors that should be considered in making the decision.

Transcribed Image Text:

Current Proposed Method Method Labor $193,000 $137,000 Supervision 15,000 15,000 Power 197,000 184,000 Maintenance 19,000 10,000