Question

Bryant Company has a factory machine with a book value of $90,000 and a remaining useful life of 5 years. It can be sold for $30,000. A new machine is available at a cost of $400,000. This machine will have a 5-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $600,000 to $500,000. Prepare an analysis showing whether the old machine should be retained or replaced. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Retain Equipment		Replace Equipment		Net Income Increase (Decrease)
Variable manufacturing costs		$		$		$
New machine cost
Sell old machine
Total		$		$		$

The old factory machine should be retainedreplaced.

Answer 1

Statement showing computations
Particulars	Retain Equipment	Replace Equipment	Net Income Increase/Decrease
Variable manufacturing costs Old = 600,000*5 New = 500,000*5	3,000,000.00	2,500,000.00	500,000.00
New machine cost		400,000.00	(400,000.00)
Sell old machine		(30,000.00)	30,000.00
Total	3,000,000.00	2,870,000.00	130,000.00
The old factory machine should be replaced asit will result in lower cost