Question

$85,000 and Rocko can also receive $38,000 for trading in the old machine. The new machine will reduce variable manufacturing costs by $14,000 per year over its five-year life. Should the machine be replaced

Answer 1

Answer: Yes, because income will increase by $23,000.

Step-by-step explanation:

Since the new machine will reduce variable manufacturing costs by $14,000 per year over its five-year life, the savings for the five years will be:

= $14000 × 5

= $70000

The extra cost needed will be:

= $85000 - $38000

= $47000

Based on the above calculation, the net gain will be:

= $70000 - $47000

= $23000.

Therefore, the machine should be replaced because income will increase by $23,000.