Question

Brief Exercise 20-7 Your answer is partially correct. Try again Bryant Company has a factory machine with a book value of $93,000 and a remaining useful life of 5 years. It can be sold for $33,400. A new machine is available at a cost of $363,600. This machine will have a 5-year useful life with no salvage value. The new machine brings annual variable manufacturing costs from $562,100 to $610,700. 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).) Retain Equipment Replace Equipment Increase (Decrease) Net Income Variable manufacturing costs New machine cost Sell old machine Total retained The old factory machine should be

Answer 1

Answer

* The answer is pretty much apparent that the old factory should be retained.

* This is due to the fact that it is MENTIONED in the question that "new machine brings annual variable manufacturing cost" to $ 610,700. The cost of purchasing is also a LOT more than price at which old one is sold.

* Hence your answer is correct that it should be RETAINED

	Retain Equipment	Replace Equipment	Net Income increase (Decrease)
Variable manufacturing costs	$             2,810,500	$ 3,053,500	$            (243,000)
New machine cost		$             363,600	$         (363,600)
Sell old machine		$               33,400	$              33,400
Total	$             2,810,500	$ 3,383,700	$         (573,200)