ACTG 1P12 Lecture 16: Lecture 16 03:07:18

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redmosquito980

16 Apr 2018

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The law firm of matadin and howe relies heavily on a color laser print to process the paperwork. Recently the printer has not functioned well and print jobs were not being processed. Management is considering updating the printer with a faster model. If sold now, the current printer would have a salvage value of . If operated for the remainder of its useful life, the current printer would have 0 salvage value. The new printer is expected to have a zero-salvage value after 4 years. Based on the analysis, the firm should keep the old printer as it would cost an additional . 000 over the next four years if they bought the new model. If the business segment"s elimination will affect continuing operations, the opportunity costs of its discontinuation must be included in the analysis: subject to qualitative consideration.

Related Questions

Twyla Enterprises uses a computer to handle its sales invoices.Lately, business has been so good that it takes an extra 3 hoursper night, plus every third Saturday, to keep up with the volume ofsales invoices. Management is considering updating its computerwith faster model that would eliminate all eliminate all of theovertime processing.
Current Machine New Machine
Original purchase cost $15,000 $25,000 Accumulated depreciation $6,000 ---Estimated annual operting costs $24,000 $18,000 Usefullife 5 years 5 years
If sold now, the current machine would have a salvage value of$5,000. If operaed for the remainder of its useful life, thecurrent machine would have zero salvage value. The new machine isexpected to have zero salvage value after five years.
Instructions:
Should the current machine be replaced?

copperzebra869

Lance Weber manages the cutting department of Schulze TimberCompany. He purchased a tree-cutting machine on January 1, 2014,for $420,000. The machine had an estimated useful life of 5 yearsand zero salvage value, and the cost to operate it is $89,000 peryear. Technological developments resulted in the development of amore advanced machine available for purchase on January 1, 2015,that would allow a 30 percent reduction in operating costs. The newmachine would cost $270,000 and have a 4-year useful life and zerosalvage value. The current market value of the old machine onJanuary 1, 2015, is $260,000, and its book value is $336,000 onthat date. Straight-line depreciation is used for both machines.The company expects to generate $260,000 of revenue per year fromthe use of either machine.

Calculate the total avoidable costs in keeping the old machineand replace with new machine.

decision keep replace with new

total avaioble cost

Prepare income statements for four years (2015 through 2018)assuming that the old machine is retained.2015-2018

revenue

depreciation

operating expense

Prepare income statements for four years (2015 through 2018)assuming that the old machine is replaced.

revenue

dep expense

operating expense

loss of dispoal

ACTG 1P12 Lecture 16: Lecture 16 03:07:18

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