Choosing between Two Machines Bruce’s Bakery is thinking of making its own Danishes. Two machines, A and B, are being considered for purchase. The company now purchases the Danishes from an outside supplier for 20 cents each. The cost information for producing the Danishes would be:

Required:
1. At a sales volume of 275,000 Danishes per year, which of these alternatives is best—
buying the Danishes, using machine A, or using machine B? (Ignore the time value of money, and assume straight-line depreciation.)
2. At what level of production would you be indifferent between machine A and machine B? Which machine is preferable if production exceeds this volume?

Transcribed Image Text:

Variable costs per Danish Annual fixed costs Initial cost of machine Salvage value at end of five years Estimated life of machine Machine A Machine B $0.14 $0.16 $3,500 $10,000 $5,000 $24,000 $0 $8,000 5 years 5 years