Bryant Company has a factory machine with a book value of $85,100 and a remainin
ID: 2538630 • Letter: B
Question
Bryant Company has a factory machine with a book value of $85,100 and a remaining useful life of 5 years. It can be sold for $32,300. A new machine is available at a cost of $515,600. This machine will have a 5-year useful life with no salvage value. The new machine brings annual variable manufacturing costs from $629,200 to $561,000. Prepare an analysis showing whether the old machine should be retained or replaced
Bryant Company has a factory machine with a book value of $85,100 and a remaining useful life of 5 years. It can be sold for $32,300. A new machine is available at a cost of $515,600. This machine will have a 5-year useful life with no salvage value. The new machine brings annual variable manufacturing costs from $629,200 to $561,000. Prepare an analysis showing whether the old machine should be retained or replaced
Explanation / Answer
The old machine should be retained since replacing it would result in a decrease in net income by $142300 over the 5 years.
Differential Analysis Retain Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) Retain Old Machine(Alternative 1) Replace Old Machine
(Alternative 2) Differential Effect on Income
(Alternative 2) Current selling price of old machine 0 -32300 32300 Purchase price 0 515600 -515600 Variable manufacturing costs (5 years) 3146000 2805000 341000 Total costs $ 3146000 3288300 -142300
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