Question

Bryant Company has a factory machine with a book value of $93,000 and a remaining useful life of 5 years. It can be sold for $33,400. A new machine is available at a cost of $363,600. This machine will have a 5-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $610,700 to $522,000. Prepare an analysis showing whether the old machine should be retained or replaced.

Answer 1

Answer: Retain the old equipment

Step-by-step explanation:

VARIABLE MANUFACTURING cost;

Retaining old machine = $610,700

Purchasing new = $522,000

Net = $88,700

Cost of new = $363,600

Sale of old = $33,400

Implication of purchasing new;

($522,000 + $363,600) - $33,400

$885,600 - $33,400

= $852,200

Implication of Retaining old ;

$610,700

Net :

$88700 + $33,400 - $363,600 = -$241,500