Question

Problem 20-4A (Part Level Submission) Last year (2016). Richter Condos installed a mechanized elevator for its tenants. The owner of the company, Ron Richter, recently returned from an industry equipment exhibition where he watched a computer ed elevator demonstrated. He was impressed with the elevator's speed, comfort of ride, and contendency. Upon returning from the In addition, he asked the company's accountant to provide him with cost data on the company's elevator. This informations presented below. on, he asked his purchasing agent to collect price and pers on Old Elevator New Elevator Purchase price $104,000 $160,000 Estimated svage value Estimated the years 4 years Deprecation method Straight line Straight line Annual operating costs other than depreciation $34,400 $11,000 22.800 8,800 ed now, at the beginning of 2017. Richter Condos w be able to see Annual revenues are $240,000, and selling and administrative expenses are $20,000, regardless of which $24,300 (a) Determine any gain or loss if the old elevator is replaced. Click if you would like to show Work for this questions On Show Work

Answer 1

(a) If the old elevator is replaced,

Purchase price	104000
Less: Accumulated Depreciation	(20800)
Written down value	83200
Less: Sale proceeds	(24300)
Loss on sale	58900

Depreciation ( straight line method ) = 104000/5

= 20800

INCREMENTAL ANALYSIS

Particulars	Retain old elevator	Replace old elevator	Incremental cost/revenue
Variable operating costs	137600 (34400*4)	44000 (11000*4)	93600
Fixed operating costs	91200 (22800*4)	35200 (8800*4)	56000
Salvage value		(24300)	24300
Purchase price of new elevator		160000	(160000)
	228800	214900	13900

By selling the old elevator, there is a loss of $58900.

But, by replacing the old elevator and purchasing the nee elevator, there is an incremental revenue of $13900.