Question

Exercise 20-13 (Part Level Submission)

On January 2, 2016, Twilight Hospital purchased a $101,200 special radiology scanner from Bella Inc. The scanner had a useful life of 4 years and was estimated to have no disposal value at the end of its useful life. The straight-line method of depreciation is used on this scanner. Annual operating costs with this scanner are $105,000.

Approximately one year later, the hospital is approached by Dyno Technology salesperson, Jacob Cullen, who indicated that purchasing the scanner in 2016 from Bella Inc. was a mistakePrepare an incremental analysis of Twilight Hospital. (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 Scanner		Replace Scanner		Net Income Increase (Decrease)
Annual operating costs		$		$		$
New scanner cost
Old scanner salvage
Total		$		$		$

. He points out that Dyno has a scanner that will save Twilight Hospital $26,000 a year in operating expenses over its 3-year useful life. Jacob notes that the new scanner will cost $111,000 and has the same capabilities as the scanner purchased last year. The hospital agrees that both scanners are of equal quality. The new scanner will have no disposal value. Jacob agrees to buy the old scanner from Twilight Hospital for $48,500.

Answer 1

Prepare an incremental analysis of Twilight Hospital. (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 Scanner		Replace Scanner		Net Income Increase (Decrease)
Annual operating costs		$105000*3 = 315000		79000*3 = 237000		$78000
New scanner cost				111000		-111000
Old scanner salvage				-48500		48500
Total		$315000		299500		$15500

Company should replace scanner