Question

RFJ is planning the replacement of a machine that is currently used in the manufacturing of staple pin. The following information is provided:

Old Machine New Machine

Original cost $45,000 $35,000

Useful life 10 5

Current age 5 0

Book value 25,000 -

Present disposal value 8,000 -

Future disposal value 0 0

Annual operating cost 7,000 4,000

17. Based on the above information, what is the difference in cost between keeping the old
machine and replacing it?
A) $37,000 in favor of keeping the old machine
B) $12,000 in favor of keeping the old machine
C) $37,000 in favor of replacing the machine
D) $12,000 in favor of replacing the machine

  

Answer 1

	Old machine	Replace machine
Machine cost	0	35000
Operating cost	7000*5 = 35000	4000*5 = 20000
disposal value	0	-8000
Total Cost	35000	47000

So answer is B) $12,000 in favor of keeping the old machine