Cost Estimation; Machine Replacement; Ethics

[LO 8-3] 8-43 Cost Estimation; Machine Replacement; Ethics Hardison Inc. manufactures glass for office buildings in Florida. As a result of age and wear, a critical machine in the production process has begun to produce quality defects. Hardison is considering replacing the old machine with a new machine, either brand A or brand B. The manufacturer has provided Hardison with the following data on the costs of operation of each machine brand at various levels of output: Brand B Estimated Total Costs Output (square yards) 2,000 4,000 8,000 16,000 32,000 64,000 Brand A Estimated Total Costs $ 97,000 125,000 180,000 225,000 280,000 438,000 $ 120,000 160,000 200,000 260,000 300,000 368,000 Required 1. Graph the data for the two brands of machines. 2. Use the high-low method to determine the cost equation for each brand of machine and use the results to calculate the costs of operating each machine if Hardison's output is expected to be 25,000 square yards. 3. Using the high-low equations from requirement 2 calculate the costs of operating each machine if Hardison's output is expected to be 40,000 square yards and then for expected output of 60,000 square yards. 4. If Hardison's output is expected to be 40,000 square yards, which machine should it purchase? At 25,000 and at 60,000 square yards? Is the high-low method useful here? Why or why not? 5. As a cost analyst at Hardison, you have been assigned to complete requirement 1. A production supervi- sor comes to you to say that the nature of the defect in the product for the current machine is really very difficult to detect and that most customers will not notice it, so he questions replacing the machine. He suggests that you modify your calculations to justify keeping this machine to keep things the way they are and save the company some money. What do you say? 6. Assume that machine A is manufactured in Germany and machine B is manufactured in Canada. As a U.S.-based firm, what considerations are important to Hardison, in addition to those already mentioned in your answer to requirement 1