Kingsley Products, Ltd., is using a model 400 shaping machine to make one of its products.

Kingsley Products, Ltd., is using a model 400 shaping machine to make one of its products. Thecompany is expecting to have a large increase in demand for the product and is anxious to expandits productive capacity. Two possibilities are under consideration:Alternative 1. Purchase another model 400 shaping machine to operate along with the currentlyowned model 400 machine.Alternative 2. Purchase a model 800 shaping machine and use the currently owned model 400machine as standby equipment. The model 800 machine is a high-speed unit with double thecapacity of the model 400 machine.The following additional information is available on the two alternatives:a. Both the model 400 machine and the model 800 machine have a 10-year life from the timethey are fi rst used in production. The scrap value of both machines is negligible and can beignored. Straight-line depreciation is used.b. The cost of a new model 800 machine is $300,000.c. The model 400 machine now in use cost $160,000 three years ago. Its present book value is$112,000, and its present market value is $90,000.d. A new model 400 machine costs $170,000 now. If the company decides not to buy themodel 800 machine, then the old model 400 machine will have to be replaced in sevenyears at a cost of $200,000. The replacement machine will be sold at the end of the tenthyear for $140,000.e. Production over the next 10 years is expected to be:YearProductionin Units1 . . . . . . . . . . . . 40,0002 . . . . . . . . . . . . 60,0003 . . . . . . . . . . . . 80,0004–10 . . . . . . . . . . 90,000f. The two models of machines are not equally effi cient. Comparative variable costs per unit are:Model400

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