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PDtax
PDtax, CPA firm owner, business consultant, author
Category: Single Problem
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During 2013, the JKL Restaurant had sales revenues and food

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During 2013, the JKL Restaurant had sales revenues and food costs of $920,000 and $680,000, respectively. During 2014, JKL plans to introduce a new menu item that is expected to increase sales revenues by $116,000 and food costs by $44,000. Assuming no changes are expected for the other food items, operating profits for 2013 are expected to increase by:
Lucena Corporation purchased a machine 5 years ago for $349,000 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 $368,000 or by a new model 280 machine costing $337,000. 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 $337,000 invested in the new machine could instead have been invested in a project that would have returned a total of $446,000. In making the decision to buy the model 280 machine rather than the model 360 machine, the differential cost was:
Submitted: 2 years ago.
Category: Single Problem
Expert:  PDtax replied 2 years ago.
Welcome to the site. I'm PDtax, and will be helping you today.
During 2013, the JKL Restaurant had sales revenues and food costs of $920,000 and $680,000, respectively. During 2014, JKL plans to introduce a new menu item that is expected to increase sales revenues by $116,000 and food costs by $44,000. Assuming no changes are expected for the other food items, operating profits for 2013 are expected to increase by: $72,000.
Lucena Corporation purchased a machine 5 years ago for $349,000 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 $368,000 or by a new model 280 machine costing $337,000. 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 $337,000 invested in the new machine could instead have been invested in a project that would have returned a total of $446,000. In making the decision to buy the model 280 machine rather than the model 360 machine, the differential cost was: $31,000.
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