Selling and General Administrative Costs $3,523,260 Allocated lIZZosts {based on sales} $1,022,300 Income Before Income Taxes $2,348,220 Return on Investment 8.5% _ Investment {Historical Cost} $22,620,110 jason Connor has pointed out to Donovan that the existing machine is not only outdated but maintenance costs are becoming prohibitive. Jason also noted that maintenance costs of new general purpose machines are only $20,000 while special purpose machines can save an additional $14,000 in maintenance. Also there would be a signicant savings in insurance as the price for a general purpose machine would drop to $3,000 while a special purpose machine would be 02% higher than the general purpose machine. The machine has no market or salvage value and he is sure that its book value is now zero. The trouble is that he doesn't know which proposal is best for the company. In addition to the cost and revenue date provided, Connor provided comments on each alternative below: 1} Build a general purpose machine: This machine can be built by East division. The division is below capacity at present as a major contract has just been completed. The division could thus produce the machine without affecting revenue-producing activity, but it will take six months to complete. The machine is expected to last ve years and have no salvage value because removal costs will probably equal selling price. l[Zionnor believes that the division has the technical expertise to undertake the work. In 2012, the division produced a specialized drilling machine that has proven very successful. l[Zonnor pointed out that David Williams, chief engineer, loves the design challenge of new machines. Donovan sat down with Connor and produced the following cost estimates: Material and parts $55,000 variable overhead {50% of DL$J Fixed overhead (25% of DL$) $22,500