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A machine is currently used to produce product alpha, each unit of which earns a contribution of $46. A new product, the beta, is currently under consideration. It would make use of the same machine as the alpha; 4 hours of machine time at $7 per hour would be required to produce one unit of either alpha or beta. The machine is depreciated at a rate of $10,000 per annum, and is expected to lose $25,000 more in value (in current terms) over the period of producing the beta rather than the alpha. The internal maintenance of the machine is charged at $0.30 per machine hour. Which three of the following costs should be included in the decision of whether to make the beta rather than the alpha? A. Contribution per unit of alpha: $46. B. Variable cost per unit of using the machine: $28. C. Depreciation: $10,000 per annum. D. Loss in value over the production life of the beta: $25,000. E. Maintenance costs per unit of $1.20. |