VM Manufacturers (Pty) Ltd is a company engaged in the manufacture of consumer products using a mass production system. The demand for its products has increased significantly to such an extent that its current production capacity cannot meet the demands of its market. The Financial Manager, Mr. Quickpick, informed the management team that it can either repair and modify the existing machinery or acquire new machinery to replace the existing production process.

The following information was provided by the Financial Manager:

Repair Replace

Cost of machine R900 000 R1 600 000

Repair and modification costs R220 000 R0

Sales volume capacity (units) 50 000 60 000

Selling price per unit R45 R40

Cost of production per unit R33 R24

Selling and distribution cost (period) R180 000 R180 000

Proceeds on disposal (immediate) R250 000 R0

Proceeds on disposal (end of life) R40 000 R100 000

Required: Advise management whether the existing machine should be repaired or replaced. Support your answer with calculations and reasons using relevant costing techniques.