AP7.1 You are planning to purchase a range and have to make a choice among the following three models of the same type of equipment: Model I Model 2 Model 3 s 5,000 S 5,500 $ 5,300 5 years 5 years 5 years s 1,000 $ 1.200 800 200 S 200 $ 200 $ 80 120 100 Cash cost Estimate life Trade-in value at end of life Cash from sale of old machine Installation of new machine Initial training cost in Year 1 Annual maintenance contract Annual cost of supplies s 275 300 250 S 175 225 200o wage costs of employees $32000 $32.000 $32.000 4 CHAPTER 7 COST MANAGEMENT Using the concept of relevant costs over the five-year period, which model would be the best investment? (Noe: in your ceiculations, ignore any costs that are not relevant.) P7.5 A company owns three motels in a ski resort area. Although there is some business during the summer months, the company finds it very difficult to staff the three operations during this period and is contemplating clos- ing one of the three motels. The sales revenue and breakdown of costs during this period are as follows: Motel A $265,000 160,000 110,000 Motel C $425,000 135,000 260,000 Motel B Sales revenue Variable costs Fixed costs $325,000 150,000 167,000 a. Assuming one of the motels must be closed and that its closing will have no effect on the sales revenue of the other two, explain which motel should be closed and why