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Current Designs is always working to identify ways to increase efficiency while becoming more environmentally conscious. During a recent brainstorming session, one employee suggested to Diane that the company should consider replacing the current rotomold over as a way to realize savings from reduced energy consumption. The oven operates on natural gas, using 30600 therms of natural gas for an entire year. A new energy efficient rotomold oven would operation on 2700 therms of natural gas for an entire year. After seeking out price quotes from a few suppliers, Diane determined that it would cost 450000 to purchase a new energy efficient rotomold oven. She determines that the expected useful life of the new oven would be 8 years, and it would have no salvage value at the end of its useful life. Current Designs would be able to sell the current oven for 18000.

a) Prepare an incremental analysis to determine whether to purchase the new rotomold oven assuming that the average price for natural gas over the next 8 years will be 0.78 per therm. Should they retain or replace? The prices are needed for the following: Variable manufacturing costs, New Oven Costs. Proceed with scrapping old oven, Total.

b) Diane is concerned that natural gas prices might increase at a faster rate over the next 8 years. If the company projects average has price of the 1.02 per therm, discuss how that might change your conclusion in (a). Should they retain or replace? The prices are needed for the following: Variable manufacturing costs, New Oven Costs, Proceed wit scrapping old oven, Total.

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