Question

Murl Plastics Inc. purchased a new machine one year ago at a cost of $84.000. Although the machine operates well, the president of Murl Plastics is wondering if the company should replace it with a new electronic machine that has just come on the market. The new machine would slash annual operating costs by two-thirds, as shown in the comparative data below: In trying to decide whether to purchase the new machine, the president has prepared the following analysis: Les Savage Nations from disposa "Even though the new machine looks good," said the president. "we can't get rid of that old machine if it means taking a huge loss on it. We'll have to use the old machine for at least a few more years. Sales are expected to be $294.000 per year and selling and administrative expenses are expected to be $176.400 per year. regardless of which machine is used. Required: 1. Prepare a summary income statement covering the next five years, assuming the following: The new machine is not purchased. b. The new machine is purchased (Leave no cells blank.be certain to enter"" wherever required) New Differenc 2. Compute the net advantage of purchasing the new product using relevant costs

Answer 1

Murl Plastics Inc.
Summary Income Statement for 5 years
	Keep Old Machine	Buy New Machine	Difference
	$	$	$
Sales $294,000 X 5 years	1,470,000	1,470,000	-
			-
Operating costs	294,000	98,000	-196,000
Selling & Administrative Expenses $176,400 X 5 years	882,000	882,000	-
Depreciation on Old Machine	70,000	70,000	-
Depreciation on New Machine		126,000	126,000
			-
Net Profit/Loss	224,000	294,000	70,000
Note: The Old Machine is NOT sold per advice from President