Certain production equipment used by Dayton Mechanical has become obsolete relative to current technology. The company is considering whether it should keep or replace its existing equipment. To aid in this decision, the company’s controller gathered the following data: Old Equipment New
Certain production equipment used by Dayton Mechanical has become obsolete relative to current technology. The company is considering whether it should keep or replace its existing equipment. To aid in this decision, the company’s controller gathered the following data:
| Old Equipment | New Equipment | |
|---|---|---|
| Original cost | $770,000 | $871,200 |
| Remaining life | 5 years | 5 years |
| Accumulated |
$347,600 | $0 |
| Annual cash operating costs | $140,800 | $35,200 |
| Current salvage value | $193,600 | NA |
| Salvage value in five years | $0 | $0 |
a. What is the total dollar amount of any sunk costs in the data. $Answer
b. What is the total dollar amount of any irrelevant (nondifferential) future costs. $Answer
c. What is the total dollar amount of all relevant costs to the equipment replacement decision. $Answer
d. What is the total dollar amount of the opportunity costs associated with the alternative of keeping the old equipment? $Answer
e. What is the incremental cost to purchase the new equipment? $Answer
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