Twyla Enterprises uses a computer to handle its sales invoices. Lately, business
ID: 2442271 • Letter: T
Question
Twyla 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 faster model that would eliminate all eliminate all of the overtime processing.Current Machine New Machine
Original purchase cost $15,000 $25,000 Accumulated depreciation $ 6,000 ---Estimated annual operting costs $24,000 $18,000 Useful life 5 years 5 years
If sold now, the current machine would have a salvage value of $5,000. If operaed 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 five years.
Instructions:
Should the current machine be replaced?
Explanation / Answer
Yes, The current machine should be replaced, because the maintaining expenses are high, when we compared with the new machine maintaining expenses. Work sheet : Details Current machine New machine Original purchase cost $15,000 $25,000 Less:Accumulated Depreciation 6,000 - Book value 9,000 25,000 Depreciation = Cost of the machine - Salvage value/Estimated life period of the machine. current machine Depreciation = 9,000-5000/5=4,000/5=800 9,000-5,000/5=4,000/5=800 New macine depreciation =25,000-0/5=25.000/5=5,000 Total Operating costs for Current machine =24.000+800=24,800 Total Operating costs for New machine =18,000+5,000=23,000 Hence, the operating costs for current machine is high, when we are compared to new machine. Hence, current machine should be replaced. Yes, The current machine should be replaced, because the maintaining expenses are high, when we compared with the new machine maintaining expenses. Work sheet : Details Current machine New machine Original purchase cost $15,000 $25,000 Less:Accumulated Depreciation 6,000 - Book value 9,000 25,000 Depreciation = Cost of the machine - Salvage value/Estimated life period of the machine. current machine Depreciation = 9,000-5000/5=4,000/5=800 9,000-5,000/5=4,000/5=800 New macine depreciation =25,000-0/5=25.000/5=5,000 Total Operating costs for Current machine =24.000+800=24,800 Total Operating costs for New machine =18,000+5,000=23,000 Hence, the operating costs for current machine is high, when we are compared to new machine. Hence, current machine should be replaced.Related Questions
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