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Keller Technology produces specialised machinery customised to their clients' need. Barings Systems had ordered a custom machine five months ago and paid a 5% deposit
Keller Technology produces specialised machinery customised to their clients' need. Barings Systems had ordered a custom machine five months ago and paid a 5% deposit on the $275,000 machine. The cost of producing the machine for Barings are as follows: Just as Keller completed producing the machine, Barings went into receivership. As Barings was unable to pay for the machine, the deposit paid to Keller was forfeited. Keller is now considering the options available to them, with regards to the machine that Barings had ordered. The production manager has identified three options for Keller. Option A: Pegasus Engineering is willing to buy the Barings' machine if it can be reworked to Pegasus' specifications. The re-worked machine will be sold to Pegasus as a special order for $231,900. The additional identifiable costs to re-work the machine to Pegasus' requirements are as follows: Option B: It is porissible to convert the Barings machine into a standard machine that Keller can normaily sell for $199,375. However, as this is a conversion of a custom machine, a 4% discount will be offered to attract a buyer. In order to complete the conversion, Keller will need to incur the following costs: Option C: Keller will sell the machine in its current completed state r $185,000. End of Question Three
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