Johnson Enterprises uses a computer to handle its sales invoices. Lately, busine
ID: 2541758 • Letter: J
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 Current Machine $14,800 $7,000 $24,700 5 years New Machine $25,200 Original purchase cost Accumulated depreciation Estimated annual operating costs Remaining useful life $20,000 5 years If sold now, the current machine would have a salvage value of $11,800. 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).) Retain Machine Replace Machine Net Income Increase (Decrease) Operating costs New machine cost Salvage value (old) Total The current machine should b retained icy I Wil replaced ights Reserved. A Division of John Wiley & Sons, Inc. Version 4.24.5.1Explanation / Answer
Retain Machine Replace Machine Net Income Increase(Decrease) Operating costs 1,23,500 1,00,000 23,500 New machine cost - 25,200 (25,200) Salvage value (old) - 11,800 11,800 Total 1,23,500 1,37,000 10,100 Current machine should be replaced
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