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 depreciation $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? $Answe
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Asset replacement
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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