Exercise 12-14 Ayayai Enterprises uses a computer to handle its sales invoices.

Question

Exercise 12-14 Ayayai 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 Current New Machine Machine $15,200 $5,900 $24,900 5 years $24,900 Original purchase cost Accumulated depreciation Estimated annual operating costs Remaining useful life $19,900 5 years If sold now, the current machine would have a salvage value of $10,700. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after 5 years. Should the current machine be 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).,) Net Income Increase Retain Machine Replace Machine (Decrease) Operating costs New machine cost Salvage value (old) Total The current machine should be

Explanation / Answer

Decision making :

The current machine should be retain.

Retain machine Replace machine Net income increase (decrease) Operating costs 24900 19900 5000 New machine cost 0 24900 -24900 Salvage value (old) 0 -10700 10700 Total 24900 34100 -9200

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