The STI Desk Company manufactures student desks that it sells for $80 per unit. Current cost information is as follows:

Variable Costs:

Direct Material per Desk - $20

Direct Labour per Desk - $15

Variable Overhead per Desk - $5

Fixed Overhead for the Year - $300,000

The company must choose between two new machines to replace its old machine.

Machine A will result in an increase of $150,000 in annual fixed overhead costs and an increase of $2 per unit in variable costs. Machine B will have no effect on current fixed overhead costs but will increase current variable costs by $10 per unit. Expected sales are 18,000 per year.

REQUIRED:

1. Calculate the point of indifference.

2. Indicate which machine would be preferred below the point of indifference, and which machine would be preferred above the point of indifference.

3. Given the expected sales for the current year, make a recommendation to management as to which machine is preferred.