Brewton Freight Company owns a truck that cost $31,000. Currently, the truck\'s

Question

Brewton Freight Company owns a truck that cost $31,000. Currently, the truck's book value is $22,000, and ts expected remaining useful life is four years. Brewton has the opportunity to purchase for $29,000 a more than fuel cost for the new truck. The old truck is paid for but, in spite of being in good condition, can be sold for only $19,000 Required Calculate the total relevant costs. Replace With New Keep Old Total relevant costs Should Brewton replace the old truck with the new fuel-efficient model, or should it continue to use the old truck until it wears out? O Continue to use the old truck O Replace the old truck

Explanation / Answer

As the total relevant cost per year is more in maintaining the Old truck, so Brewton should replace the Old truck with the new fuel-efficient model.

relevant cost Keeping Old Truck Replace With New Truck Depreciation 22000/4 = $5500 $29000/4 = $7250 Fuel excess cost $5100 Nil Total Relevant costs $10600 per year $7250 per year

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