Morris Timber Corporation uses a machine that removes the bark from cut timber.

Question

Morris Timber Corporation uses a machine that removes the bark from cut timber. The machine is unreliable and results in a significant amount of downtime and excessive labor costs. The management is considering replacing the machine with a more efficient one which will minimize downtime and excessive labor costs. Data are presented below for the two machines: Old Machine New Machine Original purchase cost $340,000 $370,000 Accumulated depreciation 230,000 — Estimated life 5 years 5 years
It is estimated that the new machine will produce annual cost savings of $85,000. The old machine can be sold to a scrap dealer for $8,000. Both machines will have a salvage value of zero if operated for the remainder of their useful lives.
Instructions Determine whether the company should purchase the new machine. Morris Timber Corporation uses a machine that removes the bark from cut timber. The machine is unreliable and results in a significant amount of downtime and excessive labor costs. The management is considering replacing the machine with a more efficient one which will minimize downtime and excessive labor costs. Data are presented below for the two machines: Old Machine New Machine Original purchase cost $340,000 $370,000 Accumulated depreciation 230,000 — Estimated life 5 years 5 years
It is estimated that the new machine will produce annual cost savings of $85,000. The old machine can be sold to a scrap dealer for $8,000. Both machines will have a salvage value of zero if operated for the remainder of their useful lives.
Instructions Determine whether the company should purchase the new machine. Morris Timber Corporation uses a machine that removes the bark from cut timber. The machine is unreliable and results in a significant amount of downtime and excessive labor costs. The management is considering replacing the machine with a more efficient one which will minimize downtime and excessive labor costs. Data are presented below for the two machines: Old Machine New Machine Original purchase cost $340,000 $370,000 Accumulated depreciation 230,000 — Estimated life 5 years 5 years
It is estimated that the new machine will produce annual cost savings of $85,000. The old machine can be sold to a scrap dealer for $8,000. Both machines will have a salvage value of zero if operated for the remainder of their useful lives.
Instructions Determine whether the company should purchase the new machine. Morris Timber Corporation uses a machine that removes the bark from cut timber. The machine is unreliable and results in a significant amount of downtime and excessive labor costs. The management is considering replacing the machine with a more efficient one which will minimize downtime and excessive labor costs. Data are presented below for the two machines: Old Machine New Machine Original purchase cost $340,000 $370,000 Accumulated depreciation 230,000 — Estimated life 5 years 5 years
It is estimated that the new machine will produce annual cost savings of $85,000. The old machine can be sold to a scrap dealer for $8,000. Both machines will have a salvage value of zero if operated for the remainder of their useful lives.
Instructions Determine whether the company should purchase the new machine. Morris Timber Corporation uses a machine that removes the bark from cut timber. The machine is unreliable and results in a significant amount of downtime and excessive labor costs. The management is considering replacing the machine with a more efficient one which will minimize downtime and excessive labor costs. Data are presented below for the two machines: Old Machine New Machine Original purchase cost $340,000 $370,000 Accumulated depreciation 230,000 — Estimated life 5 years 5 years
It is estimated that the new machine will produce annual cost savings of $85,000. The old machine can be sold to a scrap dealer for $8,000. Both machines will have a salvage value of zero if operated for the remainder of their useful lives.
Instructions Determine whether the company should purchase the new machine.

Explanation / Answer

Solution :

As there is net benefit of $63,000 from replacement, therefore company should purchase the new machine.

Evaluation of Replacement proposal - Morris Timber Corporation Particulars Amount Purchase cost of new machine $370,000.00 Sale value of old machine $8,000.00 Net Cost of replacement $362,000.00 Annual cost savings ($85,000*5) $425,000.00 Net benefit (Loss) from replacement $63,000.00

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.