Question

A.

Granfield Company has a piece of manufacturing equipment with a book value of $43,500 and a remaining useful life of four years. At the end of the four years the equipment will have a zero salvage value. The market value of the equipment is currently $22,700. Granfield can purchase a new machine for $127,000 and receive $22,700 in return for trading in its old machine. The new machine will reduce variable manufacturing costs by $19,700 per year over the four-year life of the new machine. The total increase or decrease in net income by replacing the current machine with the new machine (ignoring the time value of money) is:

B.

iSooky has a spotter truck with a book value of $42,000 and a remaining useful life of 5 years. At the end of the five years the spotter truck will have a zero salvage value. The market value of the spotter truck is currently $33,000. iSooky can purchase a new spotter truck for $122,000 and receive $31,200 in return for trading in its old spotter truck. The new spotter truck will reduce variable manufacturing costs by $25,200 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 (ignoring the time value of money) is:

C.

Ahngram Corp. has 1,000 carton of oranges that cost $20 per carton in direct costs and $19.00 per carton in indirect costs and sold for $40 per carton. The oranges can be processed further into orange juice at an additional cost of $15.00 and sold at a price of $66. The incremental income (loss) from processing the oranges into orange juice would be:

D.

Soar Incorporated is considering eliminating its mountain bike division, which reported an operating loss for the recent year of $7,000. The division sales for the year were $1,054,000 and the variable costs were $864,000. The fixed costs of the division were $197,000. If the mountain bike division is dropped, 30% of the fixed costs allocated to that division could be eliminated. The impact on operating income for eliminating this business segment would be:

Answer 1