6. )o Rory Company has a machine with a book value of $125,000 and a remaining f

Question

6. )o Rory Company has a machine with a book value of $125,000 and a remaining five-year useful life. A new machine is available at a cost of $114,500, and Rory can also receive $85,000 for trading in its old machine. The new machine will reduce variable manufacturing costs by $15,500 per year over its five-year useful life Calculate the incremental income. (Any losses or outflows should be entered with a minus sign.) Incremental Income From Replacing Machine Incremental income (incremental cost)

Explanation / Answer

Incremental Income From Replacing Machine

Cost of new machine ($114,500) Cash received from trade in of old machine $85,000 Reduction in variable manufacturing costs $77,500 Incremental income (incremental cost) $48,000 Should the machine be replaced? Yes

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