# Answered Essay: Management of Childers Corporation is considering whether to purchase a new model 370 machine costing \$470,000 or a new model 240 m

4 Management of Childers Corporation is considering whether to purchase a new model 370 machine costing \$470,000 or a new model 240 machine costing \$423,000 to replace a machine that was purchased 5 years ago for \$436,000. The old machine was used to make product M25A until it broke down last week Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model 240 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product M25A. Management also considered, but rejected, the alternative of simply dropping product M25A. If that were done, instead of investing \$423,000 in the new machine, the money could be invested in a project that would return a total of \$450,000. In making the decision to invest in the model 240 machine, the opportunity cost was \$470,000 O \$423,000 O \$450,000o O \$436,000

 4) Answer: \$450,000 Explanation: Opportunity cost arises when an alternative is chosen and that opportunity cost is the benefit lost by foregoing the next best opportunity. The alternative chosen by the management is acquiring the new machine Model 240. The opportunity cost is the return that could have been earned if the money for Model 240 Machine is invested in the alternative proect with a total return of \$450000. Hence, answer = \$450,000. 9) Answer: \$2,282,290 Calculation and explanation: Total cost Unit cost TOTAL COST OF MANUFACTURE FOR 11300 Units 868970 76.90 601160 53.20 Direct materials 812160 71.87 Direct labor Manufacturing overhead 2282290 201.97 (751140+11300*5.40) Total cost Manufacturing overhead seems to be a msemi-variable cost: The variable element can be found out from the total cost at both the levels by \$           5.40 per unit using the formula variable cost = Change in total cost/(Change in quantity) \$   7,51,140 = (11700*69.60-10700*75.60)/1000 = Fixed portion = 11700*69.60-11700*5.4 = The equation for the manufacturing overhead cost = Y (Total manufacturing OH) = \$751140+q*\$5.40, where q = the quantity of production. 18) Answer: \$8,868.03 Calculation and explanation: The variable element using the high/low method is given by the formula (Total cost at highest level of activity-Total cost at lowest level of activity)/(Units at highest level of activity-Units at lowest level of activity) = (18100-17110)/(979-874) = \$           9.43 (March is the month of highest activity and September is the month of lowest activity) The fixed element = 18100-979*9.43= \$   8,868.03 Answer
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