Question

Last year (2016), Riverbed 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 computerized elevator demonstrated. He was impressed with the elevator's speed, comfort of ride, and cost efficiency. Upon returning from the exhibition, he asked his purchasing agent to collect price and operating cost data on the new elevator. In addition, he asked the company’s accountant to provide him with cost data on the company’s elevator. This information is presented below.

Problem 12-4 (Part Level Submission Last year (2016), Riverbed 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 computerized elevator demonstrated. He was impressed with the elevator's speed, comfort of ride, and cost efficiency. Upon returning from the exhibition, he asked his purchasing agent to collect price and operating cost data on the new elevator. In addition, he asked the company's accountant to provide him with cost data on the company's elevator. This information is presented below. Old Elevator New Elevator Purchase price $160,000 $100,000 Estimated salvage value 0 0 5 years Estimated useful life 4 years Straight-line Straight-line Depreciation method Annual operating costs other than depreciation: Variable $34,700 $9,000 Fixed 24,000 8,100 Annual revenues are $241,000, and selling and administrative expenses are $28,000, regardless of which elevator is used. If the old elevator is replaced now, at the beginning of 2017, Riverbed Condos will be able to sell it for $25,600.

I only need answers to the ones in RED.

I

I only need answers to the ones in RED that are incorrect!

Answer 1

	Retain old elevator	Replace old elevator	Net income increase or decrease
Variable operating costs	138,800	36,000	102,800
Fixed operating costs	96,000	32,400	63,600
New elevator cost	0	160,000	- 160,000
Salvage on old elevator	0	- 25,600	25,600
Total	$234,800	$202,800	$32,000

Old elevator should be replaced since it will result in an incremental gain of $32,000

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