Last year 2016 Richter o dos installed a mechanized elevator or s tenants e o ne

Question

Last year 2016 Richter o dos installed a mechanized elevator or s tenants e o ner of the compan Ron R chter, recent Y returned an an indust equipment e hibitian here he watc ed a computerized elevator de anstrated H? was ressed with the ele atar's spee com ort o ide, and cost efficiency, Upon returning from the exh bition, he asked his purchasing egent to collect price and operating cost data on the new elevetor. In eddition, he asked the compeny's eccountant to provide him with cost data on the company's elevator. This information is presented Old Elevator 105,000 New Elevator $160,00 Purchase price Estimated salvage velue 5 years 4 years Depreciation mathod Annual opcrating costs other than depreciation: 35,100 23,800 11,000 8,000 Annual revenues * ??241,000 and seli g and administrative expenses are 29,000 egerdiess af heh elevator is used. If the old elevator is eplaced now, a, the beginning of 2017, Richter Condes will be able to sell it for $24,500 Determine any gain or loss if the old elevator is replaced. Prepare a 4-year summarized income statement for each of the following assumptions: (1) The ald clevator ia retained Less costS Fixed costs Saling & administrative Nct incomc (2) The eld elevater is replaced Replace Old Elevator Less costs Variable costs Fixed costs Seling & administretive Depreciation Operating income Less: Loss on old elevator

Explanation / Answer

A. determine gain or loss if the old elevator is replaced:

=$ 20900

B. Prepare a 4 years summarised income statement for each of the following assumptions.

Particular ($)

Annual Revenue 964000

Less cost:

Variable Cost (140400)

Fixed Cost (95200)

Selling & Distribution Cost (116000)

Depreciation (84000)

2.The old Elevator is replaced

($)

Annual Revenue 241000

Less cost:

Variable Cost (11000)

Fixed Cost (8000)

Depreciation (40000)

Selling & distribution (29000)

Loss On OLd Elevator (20900)

Net Income 132100

C. Using Incremental analysis, determine if the old elevator should be replced.

Net Income

Increase/(Decrease) ($)

Particular Retain old Elevator ($) Replace old Elevator ($)

Net Income

Increase/(Decrease) ($)

Variable Cost 35100 11000 24100 Fixed Costs 23800 8000 15800 New Elevator Cost 160000 160000 Salvage Value (24500) (24500) Total 34400 179000

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