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What is the annual depreciation expense of one present Machine?


LL11“: blClJ UCJI'UHLU 1'1..- l."l..ll.l OIL UCIIHED, 111L+, PIUUUL'L'D cl Ball“: 11.11 lJl-L'lbuufll CULHPULCID Ull cl LL1- RDM disk, which is entitled: Armageddon, the Final Battle. The company sells the disk to
software retailers for $20.00, each, with a 5% discount for orders of 100| copies or more; virtually
every retailer takes the discount. The variable costs of producing the disks are low, totaling only
$7.00 each for the blank disk onto which the game is copied, the wages of the machine operator,
and the packaging. The game has become a best seller, and the production manager must plan to expand the capacity of the plant to tum out [ED-ROM disks. (ID-ROM disks are produced on a machine which makes
copies of a master disk, one at a time. Each copy takes fifteen minutes, which includes inserting the blank disk, imprinting the game, and removing the finished disk. At present, the Company has four machines; each machine cost $80,000 and has a service life of
five years. The Company operates two eight-hour shifts per day, 50 weeks per year, and the
machines require servicing and adjustments for one hour every day. New machines can be purchased for $35,000. They also have a service life of five years and
require one hour of servicing, but they can make copies in ten minutes. Because of the savings in
copying time, the variable cost will drop to $6.00 per disk. a. What is the annual effective capacity of one present machine? I). What is the annual depreciation expense of one present machine? (Use straight line
depreciation expense = costfservice life.) c. What is the present breakeven point?

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