Relevant Costs : Replacement Declssion Rossman lnstrument, Inc., is considering leasing new stateofart machinery at an a of $900,000. The new machinery has a four year expected life. It will repla- machinery leased one year earlier at an annual lease cost of $490,000 committed for Early termination of this lease contract will incure a $280,000 penalty. There is no 1 costs. The new machinery is expected to decrease variable product costs from $42 to $ because of improved materials yield, faster machine speed, and lower direct labor, s material handling, and qualityinspection requirements. The sales price will rem improvements in quality, production cycle time, and customer responsiveness are - increase annual sales from 361.000 units to 40.000 units. The variable product costs stated earlier exclude the inventorycarrying costs. Becau machinery is expected to affect inventory levels, the following estimates are also pro enhanced speed and accuracy of the new machinery are expexted to decrease produ time by half, and consequently, lead to decrease in worlr in process inventory level ' months to just one-half months of production. Increased flexibility wth these new expected to allow a reduction in nished goods inventory from two months of pro just one month. Improved yield rates and greater machine reliability will enable a r raw material inventory from four months of production to just one and one-ha Annual inventory carrying cost is 2026 of inventory value. category Old Machine m Average per unit cost of raw material inventory $12 '! Average per unit cost of worlrin-process inventory 25 Average per unit cost of nishedgoods inventory 33 Selling cost per unit sold 4 'v'ariable product cost per unit produced 42 Requhed {a} Determine the total value of annual benets from the new machinery. inclu in inventory carrying costs. {bl Should Fiossman replace its existing machinery with the new machinery? Pr- reasoning with detailed steps identifying relevant costs and revenues. {c} Discuss whether a manager evaluated on the basis of Ftossman's net incom the incentive to make the right decision as evaluated in [bi above