Trask Industries, Inc. is considering replacing its old machine with a book value of P150,000 and still has a remaining useful life of three (3) years. The old machine will be replaced with a new one that will cost P375,000, with a three-year useful life and no salvage value. The annual operating costs of the old machine amount to P180,000, which can be reduced by 55% if a new machine is acquired. The old machine will have no disposal value after three (3) years but can be disposed of now at P60,000. a. Ignoring the time value of money and income taxes, determine the differential cost. b. Should the machine be retained or replaced?

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.