Johnson Enterprises uses a computer to handle its sales invoices. Lately, busine
ID: 2423982 • Letter: J
Question
Johnson Enterprises uses a computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per night, plus every third Saturday, to keep up with the volume of sales invoices. Management is considering updating its computer with a faster model that would eliminate all of the overtime processing. Current Machine New Machine Original purchase cost $15,370 $24,900 Accumulated depreciation $ 5,390 _ Estimated annual operating costs $24,630 $19,900 Useful life 5 years 5 years If sold now, the current machine would have a salvage value of $12,070. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after 5 years. Prepare an incremental analysis. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Retain Machine Replace Machine Net Income Increase (Decrease) Operating costs $Entry field with incorrect answer $Entry field with incorrect answer $Entry field with incorrect answer New machine cost Entry field with correct answer Entry field with incorrect answer Entry field with incorrect answer Salvage value (old) Entry field with correct answer Entry field with incorrect answer Entry field with incorrect answer Total $Entry field with incorrect answer $Entry field with incorrect answer now contains modified data $Entry field with incorrect answer Should the current machine be replaced?
Explanation / Answer
-10820
Conclusion : Current machinery should be replaced as there is incremental benefit of 10820 over the period of machine
Particulars Retain machine Replace machine Increase / Decrease in cost Initial Cost 0 12830 12830 Operating costs 123150 99500 -23650 Net Benefit 123150 112330-10820
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