Cost Management: A Strategic Emphasis 7th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 25

Williams Auto has a machine that installs tires. The machine is now in need of repair. The machine originally cost $10,000 and the repair will cost $1,000, but the machine will then last two years. The variable (labor) cost of operating the machine is $0.50 per tire. Instead of repairing the old machine, Williams could buy a new machine at a cost of $5,000 that would also last two years; the labor cost per tire would be reduced to $0.25 per tire. Should Williams repair or replace the machine if it expects to install 10,000 tires in the next two years