Rory Company has an old machine with a book value of $75,000 and a remaining five-year useful life. Rory is considering purchasing a new machine at a price of $90,000. Rory can sell its old machine now for $60,000. The old machine has variable manufacturing costs of $33,000 per year. The new machine will reduce variable manufacturing costs by $13,000 per year over its five-year useful life. (a) Prepare a keep or replace analysis of income effects for the machines. (b) Should the old machine be replaced?

Prepare a keep or replace analysis of income effects for the machines.

Keep or Replace Analysis	Keep	Replace	Income Increase (Decrease) if replaced
Revenues
Sale of existing machine
Costs
Purchase of new machine
Variable manufacturing costs
Income (loss)

2. Surf Company can sell all of the two surfboard models it produces, but it has only 400 direct labor hours available. The Glide model requires 2 direct labor hours per unit. The Ultra model requires 4 direct labor hours per unit. Contribution margin per unit is $200 for Glide and $300 for Ultra. (a) Compute the contribution margin per direct labor hour for each product. (b) Determine the best sales mix and the resulting contribution margin.

Compute the contribution margin per direct labor hour for each product.

	Glide	Ultra
Contribution margin per direct labor hour

Determine the best sales mix and the resulting contribution margin.

	Glide	Ultra
Number of units
Contribution margin