Question

Johnson Enterprises uses a computer to handle its sales invoices. Lately, business has been so good...

Johnson Enterprises uses a computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per night, plus every third Saturday, to keep up with the volume of sales invoices. Management is considering updating its computer with a faster model that would eliminate all of the overtime processing.

Current Machine New Machine
Original purchase cost $14,700 $24,800
Accumulated depreciation $5,500 _     
Estimated annual operating costs $24,600 $20,000
Remaining useful life 5 years 5 years


If sold now, the current machine would have a salvage value of $11,900. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after 5 years.

Business   Accounting   
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Answer #1

Conclusion:

Retaining the Existing Machine will costs more than Purchasing of New Machine.

Therefore, it is suggested to Replace the existing machine with New machine.

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