Benson Co. is considering disposing of a machine with a bookvalue of $125,000 an

Question

Benson Co. is considering disposing of a machine with a bookvalue of $125,000 and estimated remaining life of five years. Theold machine can be sold for $15,000. A new high-speed machine canbe purchased at a cost of $250,000. It will have a useful life offive years and no residual value. It is estimated that variablemanufacturing costs will be reduced from $260,000 to $235,000 ifthe new machine is purchased. The annual net differential increaseor decrease in cost for the new equipment is:
a. decrease of $22,000 b. decrease of $150,000 c. increase of $22,000 d. increase of $110,000 Benson Co. is considering disposing of a machine with a bookvalue of $125,000 and estimated remaining life of five years. Theold machine can be sold for $15,000. A new high-speed machine canbe purchased at a cost of $250,000. It will have a useful life offive years and no residual value. It is estimated that variablemanufacturing costs will be reduced from $260,000 to $235,000 ifthe new machine is purchased. The annual net differential increaseor decrease in cost for the new equipment is:
a. decrease of $22,000 b. decrease of $150,000 c. increase of $22,000 d. increase of $110,000

Explanation / Answer

Benson Co. is considering disposing of a machine with a bookvalue of $125,000 and estimated remaining life of five years. Theold machine can be sold for $15,000. A new high-speed machine canbe purchased at a cost of $250,000. It will have a useful life offive years and no residual value. It is estimated that variablemanufacturing costs will be reduced from $260,000 to $235,000 ifthe new machine is purchased. The annual net differential increaseor decrease in cost for the new equipment is:
a. decrease of $22,000 b. decrease of $150,000 c. increase of$22,000 d. increase of $110,000

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