Indicate whether the cost given in the table may be relevant in decisions faced by the management of Svahn, AB, a Swedish manufacturer of sailing yachts, in the following situations [part {1) relates to case 1; part [2} relates to case 2}: Required: 1. Management is considering purchasing a Model B300 machine to use in addition to the company's present Model B100 machine. This would increase the company's production and sales. The increase in volume would be large enough to require increases in fixed selling expenses and in general administrative overhead but not in xed manufacturing overhead. 2. Management is instead considering replacing its present Model B100 machine with a new Model B300 machine. The Model B100 machine would be sold. This change would have no effect on production or sales, other than some savings in direct materials costs due to reduced waste. Sales revenue Direct materials Direct labour Variable manufacturing overhead DepreciationModel B101] machine Book valuHodel B1130 machine Disposal valueModel B1130 machine Market valueModel B301] machine {cost} i. DepreciationModel B301] machine j. Fixed manufacturing overhead {general} th'FJ-OP'P' .="'F' k. Variable selling expense |. Fixed selling expense rn. General administrative overhead Santosh Plastics Inc. purchased a new machine one year ago ata cost of $90,000. Although the machine operates well and has ve more years of operating life, the president of Santosh Plastics is wondering if the company should replace it with a new electronic machine that hasjust come on the market. The new machine costs $135,000 and is expected to slash the current annual operating costs of $63,000 by twothirds. The new machine is expected to last for five years, with zero salvage value at the end of five years. The current machine can be sold for $15,000 ifthe company decides to buy the new machine. The company uses straightline depreciation. In trying to decide whether to purchase the new machine, the president has prepared the following analysis: Book value of the old machine $75,860 Less: Salvage value 15,860 Net loss from disposal $68,860 \"Even though the new machine looks good," said the president, \"we can't get rid ofthat old machine if it means taking a huge loss on it. We'll have to use the old machine for at least a few more years." Sales are expected to be $315,000 per year, and selling and administrative expenses are expected to be $189,000 per year, regardless of which machine is used. Required: 1. Prepare a comparative income statement covering the next five years, assuming: a. The new machine is not purchased. b. The new machine is purchased. [Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.) Total expenses 2. Compute the net advantage of purchasing the new machine using only relevant costs in your analysis. (Do not round intermediate calculations} ::| 3. What is the minimum saving in annual operating costs that must be achieved in order for the president to consider buying the new machine
