1. Should SS upgrade its production line or replace it? Show your calculations2. Suppose the one-time equipment cost to replace the production equipment is negotiable.All other data are as given previously. What is the maximum one-time equipment cost that SSwould be willing to pay to replace the old equipment rather than upgrade it? Sugar Sweet (SS) Company produces and sells 7,000 specialty Treats per year at a sellingprice of $850 each. Its current production equipment, purchased for $1,850,000 and with afive-year useful life, is only two years old. It has a terminal disposal value of $0 and isdepreciated on a straight-line basis. The equipment has a current disposal price of $500,000.However, the emergence of a new technology has led SS to consider either upgrading orreplacing the production equipment. The following table presents data for the twoalternatives:Aв1 ChoiceUpgradeReplace2 One-time equipment costs$3,000,000$4,800,0003 Variable manufacturing cost per Treat$150$704 Remaining useful life of equipment (years)335 Terminal disposal value of equipment

Introduction: A production line is a conventional practice associated with manufacturing. The…

Answered: 1. Should SS upgrade its production…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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1. Should SS upgrade its production line or replace it? Show your calculations

2. Suppose the one-time equipment cost to replace the production equipment is negotiable.
All other data are as given previously. What is the maximum one-time equipment cost that SS
would be willing to pay to replace the old equipment rather than upgrade it?

Sugar Sweet (SS) Company produces and sells 7,000 specialty Treats per year at a selling
price of $850 each. Its current production equipment, purchased for $1,850,000 and with a
five-year useful life, is only two years old. It has a terminal disposal value of $0 and is
depreciated on a straight-line basis. The equipment has a current disposal price of $500,000.
However, the emergence of a new technology has led SS to consider either upgrading or
replacing the production equipment. The following table presents data for the two
alternatives:
A
в
1 Choice
Upgrade
Replace
2 One-time equipment costs
$3,000,000
$4,800,000
3 Variable manufacturing cost per Treat
$150
$70
4 Remaining useful life of equipment (years)
3
3
5 Terminal disposal value of equipment

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