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Valley Manufacturing is in need of a new machine for its molding department to manufacture a new product. The Company expects that at the end of 5 years this new product will no longer be produced due to changes in technology. The Production Manager has found two different machines that she has determined will both meet the needs of the molding department in the manufacturing of the new product. Machine 1 has a new technology that will reduce a number of the processes currently being used in the molding department. Machine 2 is reliable but will not eliminate any current processes in the molding department. Only one of the machines will be purchased. Further details regarding the two machines is provided below: The Total Production units for each year during the 5 year life of the product are forecasted to be 40,000 The cost of Machine 1 is $250,000. The cost of Machine 2 is $230,000. The policy of the Company is to depreciate fixed assets over a life of 5 years using the straight line method with no salvage value. The company expects that neither machine will have a resale value at the end of 5 years and that they would be scrapped. Machine I will incur a variable cost of $1.25 per unit produced to maintain its operating software and to keep its hardware properly tuned. The company will realize a savings in fixed labor cost of $10,000 per year due to the reduction in the processes it will allow. Machine 2 will incur a variable cost of $.75 per unit produced to maintain it in operating condition. 1 At the forecasted level of production units what is the annual cost the Company will incur for Machine 1? What would it be for Machine 2? 2 At what volume of production units is there no difference to the Company in which machine that they purchase. 3 With the current forecasted level of annual production which machine should be purchased? 4 What other factors should the Company consider in deciding which machine to purchase? (Be sure to be complete in your

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