Question

15 iSooky has a spotter truck with a book value of $40,000 and a remaining useful life of five years. At the end of the five years the spotter truck will have a zero salvage value. The market value of the spotter truck is currently $32,000. iSooky can purchase a new spotter truck for $120,000 and receive $31,000 in return for trading in its old spotter truck. The new spotter truck will reduce variable manufacturing costs by $25,000 per year over the five-year life of the new spotter truck. The costs not relevant to the decision of whether or not to replace the spotter truck are: Multiple Choice O $31,000 O $25,000. O $125,000 O $120,000 O $40,000.

Answer 1

Solution 15:

Cost not relevant to the decision = Book value of Old truck = $40,000

Hence, last option is correct.

Solution 17:

Proposed Net operating Income/ (Loss) = Unavoidable Fixed costs = $318000 * (100%- 60%) = $318000* 40% = ($127,200)

Current Loss = ($53000)

Increase (Decrease) in Operating Income = ($127200) - ($53000) = ($74,200)

Hence $74200 Decrease is correct answer.