A business can purchase Machine "A" for $70,000. Cost per unit output would be $15. It could purchase Machine "B" for $127,000. Cost per unit would be $12. Both machines are depreciated on a straight-line basis over 10 years. The product retails for $20 and sells 40,000 units. If sales are expected to increase by 15% next year, which machine is the better financial choice?

Question

Quizplus · Accepted Answer

Machine B provides a higher income due to lower unit cost and increased sales, despite its higher initial cost. The savings on cost per unit with increased sales volume outweigh the higher depreciation expense.

A Business Can Purchase Machine "A" for $70,000