Starling Co. is considering disposing of a machine with a book value of $24,700

Question

Starling Co. is considering disposing of a machine with a book value of $24,700 and estimated remaining life of five years. The old machine can be sold for $5,200. A new high-speed machine can be purchased at a cost of $67,000. It will have a useful life of five years and no residual value. It is estimated that the annual variable manufacturing costs will be reduced from $22,700 to $20,100 if the new machine is purchased. The differential effect on income for the new machine for the entire five years is a(n) Oa. decrease of $63,440 b. decrease of $48,800 c. increase of $63,440 Od. increase of $48,800o

Explanation / Answer

Differential income =

So answer is b) decrease of 48800

Old machine New machine Variable operating cost -113500 -100500 New machine cost 0 -67000 Salvage 0 5200 Total -113500 -162300

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

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