Marshall Manufacturing, Inc. has produced two products, Z and P, at its Richmond plant for several years. On March 31, 20X2, P was dropped from the product line. Marshall manufactures and sells 50,000 units of \(Z\) annually, and this is not expected to change. Unit material and direct labor costs are \(\$ 12\) and \(\$ 7\), respectively.

The Richmond plant is in a leased building; the lease expires June 30, 20X6. Annual rent is \(\$ 75,000\). The lease provides Marshall the right of sublet; all non-removable leasehold improvements revert to the lessor. At the end of the lease, Marshall intends to close the plant and scrap all equipment.

P has been produced on two assembly lines which occupy \(25 \%\) of the plant. The assembly lines will have a book value of \(\$ 135,000\) and a remaining useful life of seven years as of June 30, 20X2. This is the only portion of the plant available for alternative uses.

Marshall uses one unit of \(\mathrm{D}\) to produce one unit of \(\mathrm{Z}\). \(\mathrm{D}\) is purchased under a contract requiring a minimum annual purchase of 5,000 units. The contract expires June 30, 20X6. A list of \(D\) unit costs follows: Alternatives are available for using the space previously used to manufacture P. Some mar be used in combination. All can be implemented by June \(30,20 \times 2\). Should no action be taken. the plant is expected to operate profitably, and manufacturing overhead is not expected to differ materially from past years when \(\mathrm{P}\) was manufactured.

Following are the alternatives:

1. Sell the two \(P\) assembly lines for \(\$ 70,000\). The purchaser will buy only if he can acquire the equipment from both lines. The purchaser will pay all removed and transportation costs.

2. Sublet the floor space for an annual rental of \(\$ 12,100\). The lease will require that the equipment be removed (cost nominal) and leasehold improvements costings sis.000 be installed. Indirect costs are expected to increase \(\$ 3,500\) annually as a risult of the sublease.

3. Convert one or both \(P\) assembly lines to produce \(D\) at a cost \(\$ 45,500\) for each line. The converted lines will have a remaining useful life of 10 years. Each modified line can produce any number of units of \(D\) up to a maximum of 37,000 units at a unit direct material and direct labor cost sof \(\$ .10\) and \(\$ .25\), respectively. Annual manufacturing overhead is expected to increase from \(\$ 550,000\) to \(\$ 562,000\) if one line is comverted and to \(\$ 566,000\) if both lines are conveted.

Required:
Prepare a schedule to analyze the best utilization of the following alternatives for the four vears ended lune 30, 20X6. Ignore income taxes and the time value of money.
1. Continue to purchase D; sell equipment; rent space.
2. Continue to purchase \(D\); sell equipment.
3. Produce \(\mathrm{D}\) an two assembly lines; purchase \(\mathrm{D}\) as needed.
4. Prouluce \(\mathrm{D}\) on one assembly line; purchase \(\mathrm{D}\) as needed.
Set up your workpaper allowing one column for the evaluation of each alternative. The columns should be numbered \(1,2,3\), and 4 .