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

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Asked Dec 7, 2019
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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 $70,850
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Amount ($) Particulars Purchase of new machinery Sale of old machinery (S72,700) $5,200 13000 (S22,500 - $19,900)x5years Savings in annual costs increase / (decrease) of income (S54,500)

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