LN Manufacturing is deciding whether to keep or replace an old machine. It obtains the following information:

1-LN Manufacturing is deciding whether to keep or replace an old machine. It obtains the following information:

	Old Machine	New Machine
Original cost	$10,700	$9,000
Useful life	10 years	3 years
Current age	7 years	0 years
Remaining useful life	3 years	3 years
Accumulated depreciation	$7,490	Not acquired yet
Book value	$3,210	Not acquired yet
Current disposal value (in cash)	$2,200	Not acquired yet
Terminal disposal value (3 years from now)	$0	$0
Annual cash operating costs	$17,500	$15,500

LN Manufacturing uses straight-line depreciation.

1. Using incremental analysis determine whether LN Manufacturing should replace the old machine? (7 point)

2. What other factors should management consider in making its decision? (3 point)

2. (a) The Sacramento Company manufactures Part No. 498 for use in its production line. The manufacturing cost per unit for 30,000 units of Part No. 498 is as follows:

Direct materials	$5
Direct manufacturing labor	22
Variable manufacturing overhead	8
Fixed manufacturing overhead allocated	15
Total manufacturing cost per unit	50

The Counter Company has offered to sell 30,000 units of Part No. 498 to Sacramento for $47 per unit. Sacramento will make the decision to buy the part from Counter if there is an overall savings of at least $30,000 for Sacramento. If Sacramento accepts Counters offer, $8 per unit of the fixed overhead allocated would be eliminated. Furthermore, Sacramento has determined that the released facilities could be used to save relevant costs in the manufacture of Part No. 575. For Sacramento to achieve an overall savings of $30,000, the amount of relevant costs that would have to be saved by using the released facilities in the manufacture of Part No. 575 would be which of the following: (a) $90,000, (b) $150,000, (c) $180,000, or (d) $210,000? Show your calculations.

(7 points)

(b) What other factors might Sacramento consider before outsourcing to Counter? (3 points)

LN Manufacturing uses straight-line depreciation.

Using incremental analysis determine whether LN Manufacturing should replace the old machine?