Answered: effect on income for the new machine

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 4BE: Replace equipment A machine with a book value of 80,000 has an estimated five-year life. A proposal...

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37.

Starling Co. is considering disposing of a machine with a book value of $23,400 and estimated remaining life of five years. The old machine can be sold for $5,000. A new high-speed machine can be purchased at a cost of $66,700. It will have a useful life of five years and no residual value. It is estimated that the annual variable manufacturing costs will be reduced from $23,500 to $19,200 if the new machine is purchased. The differential effect on income for the new machine for the entire five years is a(n)

a.increase of $40,200

b.decrease of $40,200

c.decrease of $52,260

d.increase of $52,260

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