Question

Bryant Company has a factory machine with a book value of $93,700 and a remaining useful life of 7 years. It can be sold for $34,700. A new machine is available at a cost of $378,500. This machine will have a 7-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $605,900 to $457,900. Prepare an analysis showing whether the old machine should be retained or replaced. (In the first two columns, enter costs and expenses as positive amounts, and any amounts received as negative amounts. In the third column, enter net income increases as positive amounts and decreases as negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Answer 1

	Retain Equipment	Replace Equipment	Net income increase(decrease)
Variable manufacturing costs	4241300	3205300	1036000
New machine cost	0	378500	-378500
Sell old machine	0	-34700	34700
Total	4241300	3549100	692200
The old factory machine should be replaced
Workings:
	Retain Equipment	Replace Equipment
Variable manufacturing costs	=605900*7	=457900*7