Cost Management 6th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 14

Cost Estimation; Machine Replacement; Ethics GlasTech Company manufactures glass for office buildings in Florida. As a result of age and wear, a critical machine in the production process has begun to produce quality defects. GlasTech is considering replacing the old machine with a new machine, either brand A or brand B. The manufacturer of each machine has provided GlasTech these data on the cost of operation of its machine at various levels of output:

Required
1. Use the high-low method to determine the cost equations for each machine. If GlasTech's output is expected to be 40,000 square yards, which machine should it purchase At 25,000 square yards Is the high-low method useful here Why or why not
2. As a cost analyst at GlasTech, you have been assigned to complete requirement 1. A production supervisor comes to you to say that the nature of the defect is really very difficult to detect and that most customers will not notice it, so he questions replacing it. He suggests that you modify your calculations to justify keeping the present machine to keep things the way they are and save the company some money. What do you say
3. Assume that machine A is manufactured in Germany and machine B is manufactured in Canada. As a U.S.-based firm, what considerations are important to GlasTech, in addition to those already mentioned in your answer to requirement 1