Question

Sooky has a spotter truck with a book value of $59.000 and a remaining useful life of five years At the end of the five years the spotter frock will have a zero-salvage value Sooky can purchase a new spotter truck for $139,000 and receive $32 900 in return for trading in its old spotter truck The old spotter truck has variable manufacturing costs of $94.000 per year The new spotter truck will reduce variable manufacturing costs by $26.900 per year over the five year life of the new spotter truck The total increase or decrease in income by replacing the current spotter truck with the new truck is

Multiple Choice
A) $32.900 decrease
B) $32.900 increase
C) $28.400 decrease
D) $139,000 decrease
E) $28,400 mcrease

Answer 1

The total increase in income by replacing the current spotter truck with the new truck, after considering the trade-in value, savings on variable costs, and the cost of the new truck, would be a $28,400 increase.

Step-by-step explanation:

To determine the total increase or decrease in income by replacing the current spotter truck with a new one, we need to consider the trade-in value of the old truck, the cost savings in variable manufacturing costs, and the cost of the new truck.

1. The trade-in value of the old truck is $32,900.
2. The new truck will reduce variable manufacturing costs by $26,900 per year.
3. Over five years, the savings on variable costs would be $26,900 x 5 = $134,500.
4. The cost to purchase the new truck is $139,000.
5. So, the net change in cost after the trade-in would be $139,000 - $32,900 = $106,100.
6. The total savings over five years is $134,500, and the net cost is $106,100, leading to an overall increase in income of $134,500 - $106,100 = $28,400 increase.