Kobe Company has a factory machine with a book value of $90,000 and a remaining useful life of 5 years. It can be sold for $30,000. A new machine is available at a cost of $300,000. This machine will have a 5-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $600,000 to $500,000. In the table below, prepare an analysis showing whether the old machine should be retained or replaced. NET 4-YEAR REPLACE EQUIPMENT RETAIN INCOME EQUIPMENT INCREASE / (DECREASE) Variable manufacturing costs for 4 years: New machine cost Sale proceeds from old machine. Total What should be the decision of the company? Why? Justify your answer.

Kobe Company has a factory machine with a book value of $90,000 and a remaining useful life of 5 years. It can be sold for $30,000. A new machine is available at a cost of $300,000. This machine will have a 5-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $600,000 to $500,000. In the table below, prepare an analysis showing whether the old machine should be retained or replaced. NET 4-YEAR REPLACE EQUIPMENT RETAIN INCOME EQUIPMENT INCREASE / (DECREASE) Variable manufacturing costs for 4 years: New machine cost Sale proceeds from old machine. Total What should be the decision of the company? Why? Justify your answer.

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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