PROBLEM ONE ( 30 points) NAME: Glven: A machine which cost 240 KS to purchase. h
ID: 2604077 • Letter: P
Question
PROBLEM ONE ( 30 points) NAME: Glven: A machine which cost 240 KS to purchase. has depreciated im has a remaining useful life of 4 years, and the disposal cost which stands on • nas depreciatod imity to 80 KS IN presently, shall be reduced to OS at the end of this time. Available on a a new machine, which will reduce the present operating costs ol end of this time available on the market nou s Il reduce the present operating costs of 150 KS per annum I 40%, whose purchase price is 120 KS. useful life is four years, and yo will be 2K$ at the end of its useful life. The sales revenue of 300 KS pe ime is four years, and whose diaposal cont e sales revenue of 300 KS per annum in remain unchanged throughout the time, regardless of the machine used Required: ) How old is the present machine? Snould this operation retain the old machine of conven to the new one, they wan" to maximize their profits? Show by relevant calculations and by writing the income statement.Explanation / Answer
Solution - a:
Cost of Old Machine = $240,000
Current book value = $80,000
Remaining useful life = 4 Years
Current Disposal Value = $8,000
As stated, disposal value of machine shall be reduced to $0 at end of its useful life,
Therefore annual depreciation = $80000/4 = $20,000
Hence total life of old machine = $240,000/20000 = 12 years
Therefore currently present machine is 8 years (12-4) old.
Solution - b:
Cost of new machine = $120,000
Life = 4 Years
Disposal Cost = $2,000
Annual depreciation = ($120,000 - $2,000)/4 = $29,500
If old machine is replaced with new machine than loss on sale of old machine = $80,000 - $8000 = $72,000
Operating cost if old machine is used = $150,000
Operating cost if new machine is used = $150,000*60% = $90,000
Total profit if new machine is replaced by old machine for 4 year is $650,000 which is increased by $130,000 from first alternative. Hence to maximized the profit, operation should convert old machine in to new machine.
Compartive Income Statement Particulars Old Machine Continue (Alt 1) Old Machine replaced with New Machine (Alt 2) Year 1 Year 2 Year 3 Year 4 Total Year 1 Year 2 Year 3 Year 4 Total Sales $300,000.00 $300,000.00 $300,000.00 $300,000.00 $1,200,000.00 $300,000.00 $300,000.00 $300,000.00 $300,000.00 $1,200,000.00 Operating Cost $150,000.00 $150,000.00 $150,000.00 $150,000.00 $600,000.00 $90,000.00 $90,000.00 $90,000.00 $90,000.00 $360,000.00 Depreciation $20,000.00 $20,000.00 $20,000.00 $20,000.00 $80,000.00 $29,500.00 $29,500.00 $29,500.00 $29,500.00 $118,000.00 Loss on sale of old machine $0.00 $0.00 $0.00 $0.00 $0.00 $72,000.00 $0.00 $0.00 $0.00 $72,000.00 Net Income $130,000.00 $130,000.00 $130,000.00 $130,000.00 $520,000.00 $108,500.00 $180,500.00 $180,500.00 $180,500.00 $650,000.00Related Questions
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