1. Maxwell Company has an opportunity to acquire a new machine to replace one of its current machines. The new machine would cost $90,000, have a five-year life, and an estimated salvage value of $10,000. Variable operating costs of the new machine are $100,000 per year. The current machine was purchased for $75,000 and has an accumulated depreciation of $25,000 with a remaining useful life of five years. If the new machine is purchased, the current machine will be sold for $5,000, but if the new machine is not purchased the current machine will be worthless at the end of five years. The current machine incurs variable operating costs of $125,000 per year. What is the incremental profit (loss) associated with purchasing the new machine?
2. Colson Manufacturing Company produces a variety of products. Sales of Zlone, one of its products, total $400,000 per year; variable costs are $260,000 per year and separable fixed costs are $80,000 per year. Joint costs allocated to Zlone total $100,000. Company management is considering dropping Zlone, although it has no alternative use for the facilities. Prepare an incremental analysis to determine if the product should be dropped.