Win Inc. is considering disposing of a machine with a book value of $23,950.00 a

Question

Win Inc. is considering disposing of a machine with a book value of $23,950.00 and an estimated remaining life of three years. The old machine can be sold for $5,136.00. A new machine with a purchase price of $66,155.00 is being considered as a replacement. It will have a useful life of three years and no residual value. It is estimated that annual variable manufacturing costs will be reduced from $41,336.00 to $20,368.00 if the new machine is purchased. Determine the net differential increase or decrease in cost for the entire three years for the new equipment.

Select the correct answer.

$1,885.00 $20,968.00 $40,651.00 $5,136.00

Explanation / Answer

Old machine New machine Difference Sale of old machine -5136 5136 Purchase cost of new machine 66155 -66155 Variable manufacturing costs 124008 61104 62904 Total 124008 122123 1885 Option 1 is correct

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