Johnson Enterprises uses a computer to handle its sales invoices. Lately, busine

Question

Johnson Enterprises uses a computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per night, plus every third Saturday, to keep up with the volume of sales invoices. Management is considering updating its computer with a faster model that would eliminate all of the overtime processing. If sold now, the current machine would have a salvage value of $9,030. If operated for the remainder of its useful Me, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after 5 years. Prepare an incremental analysis.

Explanation / Answer

Machine should be replaced so that costs can be reduced and profit can be increased   Statement showing computations Particulars Retain Machine Replace Machine Net income Inc(Dec) Operating costs Retain =24690*5 Replace =19570*5               123,450.00                        97,850.00                              25,600.00 New Machine Cost                        24,540.00                           (24,540.00) Salvage Value Old                        (9,030.00)                                9,030.00 Total Costs for 5 years               123,450.00                     113,360.00                              10,090.00

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