Don Williams is General manager of Carib Systems who received a proposal to replace the Version 1 with Version 2 Point of Sales (POS) equipment at the company. Williams collects data about the proposal on Version 1 and Version 2 as follows: Version 1 POS Version 2 POS Original cost $425,000 $170,000 Useful life 5 years 3 years Current age 2 years 0 years Remaining useful life 3 years 3 years Accumulated depreciation $195,000 Not purchased yet Current book value $230,000 Not purchased yet Current disposal value (in cash) $120,000 Not purchased yet Final disposal value (in cash 3 years from now) $0 $0 Annual POS cash operating costs $60,000 $20,000 Annual revenues $1,250,000 $1,250,000 Annual non POS related operating costs $920,000 $920,00 Required: As the Management Accountant: 1. Compare the costs of Version 1 POS and Version 2 POS. Consider the cumulative results for the three years together, ignoring the time value of money and income taxes. 2. Advise Mr. Williams on the factors that determine whether a revenue or cost item is relevant for management at Carib Systems and indicate whether he should accept the proposal.
Don Williams is General manager of Carib Systems who received a proposal to replace the
Version 1 with Version 2 Point of Sales (POS) equipment at the company. Williams collects
data about the proposal on Version 1 and Version 2 as follows:
Version 1 POS Version 2 POS
Original cost $425,000 $170,000
Useful life 5 years 3 years
Current age 2 years 0 years
Remaining useful life 3 years 3 years
Accumulated
Current book value $230,000 Not purchased yet
Current disposal value (in cash) $120,000 Not purchased yet
Final disposal value (in cash 3 years from now) $0 $0
Annual POS cash operating costs $60,000 $20,000
Annual revenues $1,250,000 $1,250,000
Annual non POS related operating costs $920,000 $920,00
Required:
As the
1. Compare the costs of Version 1 POS and Version 2 POS. Consider the cumulative results
for the three years together, ignoring the time value of money and income taxes.
2. Advise Mr. Williams on the factors that determine whether a revenue or cost item is relevant
for management at Carib Systems and indicate whether he should accept the proposal.
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