Lexigraphic Printing Company is considering replacing a machine that has been us

Question

Lexigraphic Printing Company is considering replacing a machine that has been used in its factory for four years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows:

Annual non-manufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.

Old Machine Cost of machine, 10-year life $89,090 Annual depreciation (straight-line) 8,705 Annual manufacturing costs, excluding depreciation 23,780 Annual non-manufacturing operating expenses 6,185 Annual revenue 74,385 Current estimated selling price of machine 29,795

Explanation / Answer

Continue with old machine Replace old machine Differential effect Revenues: Proceeds from sale of old machine 29795 29795 Costs: Purchase price -119660 -119660 Annual manufacturing costs -142680 -42450 100230 Income (Loss) -142680 -132315 10365 The machine should be replaced

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