Brief Exercise 21-7 Bryant Company has a factory machine with a book value of $8

Question

Brief Exercise 21-7

Bryant Company has a factory machine with a book value of $85,700 and a remaining useful life of 7 years. It can be sold for $25,900. A new machine is available at a cost of $420,000. This machine will have a 7-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $594,400 to $522,800. Prepare an analysis showing whether the old machine should be retained or replaced. (In the first two columns, enter costs and expenses as positive amounts, and any amounts received as negative amounts. In the third column, enter net income increases as positive amounts and decreases as negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -15 or parentheses e.g. (15).)

Retain
Equipment Replace
Equipment Net Income
Increase (Decrease) Variable manufacturing costs $

$

$

New machine cost

Sell old machine

    Total $

$

$

Explanation / Answer

The old factory machine should be Replaced.

Retain Equipment Replace Equipment Net Income Increase (Decrease) Variable manufacturing costs 4,160,800 (594,400*7) 3,659,600 (522,800*7) 501,200 New machine cost 420,000 (420,000) Sell old machine (25,900) 25,900 Total 4,160,800 4,053,700 107,100

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