Gross Profit 7, 603, 760 Selling and General Administrative Costs* 3, 578, 760 Allocated Costs ( based on sales ) 1, 677, 300 Income Before Income Taxes $ 2 , 348 , 220 Return on Sales - 10.5% Return on Investment - 8.5 % Investment ( Historical Cost ) $27, 626, 1 18 Jason Connor has pointed out to Donovan that the existing machine is not only outdated but* maintenance costs are becoming prohibitive . Jason also noted that maintenance costs of new* general purpose machines are only $ 26 ,000 while special purpose machines can save an additional $ 14, 000 in maintenance . Also there would be a significant savings in insurance as the price for a general purpose machine would drop to $3 , 000 while a special purpose machine would be 6:7%/ higher than the general purpose machine . The machine has no market or salvage value and he is sure that it's book value is now zero . The trouble is that he doesn't know which proposal is best for the company . In addition to the cost and revenue date provided , Connor provided comments on each alternative below ." 1 ) Build a general purpose machine :" This machine can be built by East division . The division is below capacity at present as a major contract has just been completed . The division could thus produce the machine without affecting* revenue- producing activity , but it will take six months to complete . The machine is expected to last five years and have no salvage value because removal costs will probably equal selling price* Connor believes that the division has the technical expertise to undertake the work . In 2012 , the* division produced a specialized drilling machine that has proven very successful . Connor pointed out that David Williams , chief engineer , loves the design challenge of new machines . Donovan sat down with Connor and produced the following cost estimates :"