The Alpha lease is operated by APC Company. The foreman of the Alpha Lease must make a decision regarding the replacement of a pumping unit on the lease. The foreman has identified three possible alternatives:

Alternative 1:

Purchase a new pumping unit. The foreman has located a vendor willing to sell the unit needed for a delivered cost of \($65,000\) FOB destination (i.e., the manufacturer pays freight to the destination point).

Alternative 2:

The Beta Lease, which is also operated by APC Company, has a surplus pumping unit that could be used. If the Beta Lease equipment is used, the Beta Lease would be charged with the cost of repairing the unit that would then be transferred to the Alpha Lease at Condition B.

Alternative 3:

The Gamma Lease, which is also operated by APC Company, has a surplus pumping unit that could be used. If the Gamma Lease unit is used, the equipment would be transferred unrepaired at Condition C.

Other information:

The current market price for the unit is \($70,000.\)
REQUIRED: Determine what the foreman on the Alpha Lease should do.

Transcribed Image Text:

APC's Working Interest Unit Repair Trucking Costs Costs Alpha Lease 100% Beta Lease Gamma Lease 60% n/a $10,000 $ 0 $2,000 30% $ 5,000 $3,000