Starling Co. is considering disposing of a machine with a book value of $24,500 and estimated remaining life of five years. The old machine can be sold for $5,200. A new high-speed machine can be purchased at a cost of 72,700. 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 $22,500 to $19,900 if the new machine is purchased. The differential effect on income for the new machine for the entire five years is a.decrease of $54,500 b.increase of $70,850 c.increase of $54,500 d.decrease of $70,850

Question

Starling Co. is considering disposing of a machine with a book value of $24,500 and estimated remaining life of five years. The old machine can be sold for $5,200. A new high-speed machine can be purchased at a cost of 72,700. 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 $22,500 to $19,900 if the new machine is purchased. The differential effect on income for the new machine for the entire five years is

a.decrease of $54,500
b.increase of $70,850
c.increase of $54,500
d.decrease of $70,850

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