Question

Bryant Company has a factory machine with a book value of $90,000 and a remaining useful life of 5 years. It can be sold for $30,000. A new machine is available at a cost of $400,000. This machine will have a 5-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $600,000 to $500,000. Prepare an analysis showing whether the old machine should be retained or replaced. (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 Equipment		Replace Equipment		Net Income Increase (Decrease)
Variable manufacturing costs		$enter the variable manufacturing costs in dollars		$enter the variable manufacturing costs in dollars		$enter the variable manufacturing costs in dollars
New machine cost		enter the cost of the new machine		enter the cost of the new machine		enter the cost of the new machine
Sell old machine		enter the proceeds from the sale of the old machine		enter the proceeds from the sale of the old machine		enter the proceeds from the sale of the old machine
Total		$enter a total amount		$enter a total amount		$enter a total amount

The old factory machine should be select an option

replacedretained

.

Answer 1

	Retain	Replace	Net Income
	Equipment	Equipment	Increase (Decrease)
Variable manufacturing costs	3,000,000	2,500,000	500,000
New machine cost	0	400,000	-400,000
Sell old machine	0	-30,000	30000
Total	3,000,000	2,870,000	130,000
The old factory machine should be
replaced

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