Ridley Company has a factory machine with a book value of $85,400 and a remainin

Question

Ridley Company has a factory machine with a book value of $85,400 and a remaining useful life of 5 years. A new machine is available at a cost of $194,200. This machine will have a 5-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $647,700 to $441,500.

Prepare an analysis showing whether the old machine should be retained or replaced. (If an amount reduces the net income for Increase (Decrease) column then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000). Enter all other amounts in all other columns as positive and subtract where necessary.)

Retain
Equipment

Replace
Equipment Net 5-Year
Income
Increase
(Decrease) Variable manufacturing costs $ $ $ New machine cost     Total $ $ $ Ridley Company has a factory machine with a book value of $85,400 and a remaining useful life of 5 years. A new machine is available at a cost of $194,200. This machine will have a 5-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $647,700 to $441,500. Prepare an analysis showing whether the old machine should be retained or replaced. (If an amount reduces the net income for Increase (Decrease) column then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000). Enter all other amounts in all other columns as positive and subtract where necessary.)

Explanation / Answer

Hi,

Please find the answer as follows:

The old machine should be replaced.

Thanks.

Retain Equipment Replace Equipment Net 5-Year
Income
Increase
(Decrease) Variable manufacturing costs 3238500 2207500 1031000 New machine cost 0 194200 -194200 Total 3238500 2401700 836800

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