Question

Revenues Less costs: Variable costs Fixed costs Selling & administrative Depreciation Operating income Loss on old elevator Net income LINK TO TEXT LINK TO VIDEO positive amounts and decreases as Using incremental analysis, determine if the old elevator should be replaced. (In the first two columns, enter costs and expenses as positive amounts, and any amounts received negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -15 or parentheses e.g. (15).) negative amounts. In the third column, enter net income increases Net Income Retain Replace Old Elevator Increase Old Elevator (Decrease) Variable operating costs Fixed operating costs New elevator cost Salvage on old elevator Totals be replaced. The old elevator Open Show Work Click if you would like to Show Work for this question:

Answer 1

1. Gain or loss if old elevator is replaced:

Cost = $104000

Useful life = 5 years

Annual depreciation= $104,000/5 = $20,800

Accumulated depreciation till date = $20,800

Book value= $83,200

Sale value = $25,500

Loss on sale = $57,700

1. Summarized income statement assuming the old elevator is retained:
Retain old elevator:
Revenues		960000	=240000*4
Less: Costs
Variable costs	$140,800		=35200*4
Fixed costs	$89,200		=22300*4
Selling and administrative costs	$116,000		=29000*4
Depreciation	$83,200		=20800*4
Total costs		$429,200
Net Income		$530,800

Assuming the old elevator is replaced:
4-Year Summarized Income Statement
Replace old elevator:
Revenues		$960,000	=240000*4
Less: Costs
Variable costs	$36,000		=9000*4
Fixed costs	$34,000		=8500*4
Selling and administrative costs	$116,000		=29000*4
Depreciation	$161,000		=(161000/4)*4
Total costs		$347,000
Operating income		$613,000
Less: Loss on sale of old elevator		$57,700
Net Income		$555,300

Incremental Analysis to determine if old elevator should be replaced:
	Retain Old Elevator	Replace Old Elevator	Net Income Increase (Decrease)
Variable operating costs	$140,800	$36,000	$104,800
Fixed operating costs	$89,200	$34,000	$55,200
New elevator cost		$161,000	($161,000)
sale proceeds old elevator		($25,500)	$25,500
Totals	$230,000	$205,500	$24,500

The Old elevator should not be replaced