Solve the problem using 6.2%, up to $128,400 for Social Security tax and using 1.45%, no wage limit, for Medicare tax. Calculate the monthly Social Security and Medicare withholdings (in $) for the employee as the payroll manager for a cargo and freight company.

The old machine should be replaced.

Explanation:

Note: See the attached excel file for the the analysis showing whether the old machine should be retained or replaced.

From the attached excel file, the following calculation are made:

Variable Manufacturing cost of Retain = Initial Variable Manufacturing cost * remaining useful life of old machine = $592,600 * 5 = $2,963,000

Variable Manufacturing cost of Replace = New Variable Manufacturing cost * Remaining useful life of new machine = $505,500 * 5 = $2,527,500

From the attached excel, it can be observed that the total cost of Retain is $32,200 higher than the total cost of Replace. This therefore implies that the old machine should be replaced.