Bryant Company has a factory machine with a book value of $85,100 and a remainin

Question

Bryant Company has a factory machine with a book value of $85,100 and a remaining useful life of 7 years. It can be sold for $25,200. A new machine is available at a cost of $394,100. This machine will have a 7-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $647,000 to $483,700. 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.-45 or parentheses e.g. (45).) Replace Retain Equipment Equipment Increase (Decrease) Net Income Variable manufacturing costs New machine cost Sell old machine Total The old factory machine should be

Explanation / Answer

The old factory machine should be REPLACED.

The total cost is lesser when the machine is replaced.

Retain equipment Replace equipement net income increase (decrease) Variable manufacturing costs (647,000*7) (483,700*7) $4,529,000 $3,385,900 $1,143,100 new machine costs nil 394,100 (394,100) sell old machine nil (25,200) 25,200 TOtal 4,529,000 3,754,800 774,200

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