In a manufacturing facility that makes electronic widgets, the main widget making machine is getting old and a project is formed to consider the replacement of this machine. The average cost of the operations performed on this machine for making a widget is $5.00 per unit. A new machine can be purchased for $50,000 that will perform these operations much more quickly and with less scrap and rework for an average cost of $3.00 per unit. An alternative machine is even faster than the first machine considered and will perform the same operations for $2.00 per unit. However, this machine will cost $75,000. The company manufactures 1,000 widgets each month.
If the production of widgets is expected to continue for at least three years, what is the preferred action?
a. Do not replace the machine
b. Replace the existing machine with a new machine costing $50,000
c. Replace the existing machine with a new machine costing $75,000
d. Buy both machines