Lucena Corporation purchased a machine 7 years ago for $339,000 when it launched product X05K.Unfortunately,this machine has broken down and cannot be repaired.The machine could be replaced by a new model 360 machine costing $353,000 or by a new model 280 machine costing $332,000.Management has decided to buy the model 280 machine.It has less capacity than the model 360 machine,but its capacity is sufficient to continue making product X05K.Management also considered,but rejected,the alternative of dropping product X05K and not replacing the old machine.If that were done,the $332,000 invested in the new machine could instead have been invested in a project that would have returned a total of $426,000.In making the decision to buy the model 280 machine rather than the model 360 machine,the differential cost was:

Question

Quizplus · Accepted Answer

The differential cost is the difference in cost between the two machines. The model 360 machine costs $353,000 and the model 280 machine costs $332,000. Therefore, the differential cost is $353,000 - $332,000 = $21,000.

Lucena Corporation Purchased a Machine 7 Years Ago for $339,000