Blue Sky Catering is considering whether to retain or replace its aging delivery truck. The old truck originally cost $58,000 when it was purchased nine years ago. It has a book value of $7,000. According to the mechanic who serviced the truck during its last oil change, the old truck has 3 years of useful life left. Blue Sky Catering wants to purchase a brand-new truck. The new truck costs $62,000 and has a 10-year useful life, after which it will have no salvage value. The new truck is a little larger and would accommodate larger jobs, leading to an additional $10,000 per year in contribution margin. It would also have a refrigerated section that would reduce waste by $500 each year. As the truck will be new, repairs and maintenance costs will also decrease from $2,100 to $1,300 annually. The old truck can be sold for $8,000. Prepare a quantitative analysis to determine whether or not to purchase the new truck. Do not enter dollar signs or commas in the input boxes. Use the negative sign for values that must be subtracted. Retain Truck Replace Truck $Answer $Answer $Answer $Answer SAnswer $Answer Repair and maintenance costs $Answer Waste $Answer Additional contribution margin $Answer Cost of new truck $Answer Sale of old truck $Answer Total Costs $Answer Should they retain their old truck or replace it? AnswerRetain Replace

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Blue Sky Catering is considering whether to retain or replace its aging delivery truck.
The old truck originally cost $58,000 when it was purchased nine years ago. It has a
book value of $7,000. According to the mechanic who serviced the truck during its last
oil change, the old truck has 3 years of useful life left.
Blue Sky Catering wants to purchase a brand-new truck. The new truck costs $62,000
and has a 10-year useful life, after which it will have no salvage value. The new truck is
a little larger and would accommodate larger jobs, leading to an additional $10,000 per
year in contribution margin. It would also have a refrigerated section that would reduce
waste by $500 each year. As the truck will be new, repairs and maintenance costs will
also decrease from $2,100 to $1,300 annually. The old truck can be sold for $8,000.
Prepare a quantitative analysis to determine whether or not to purchase the new truck.
Do not enter dollar signs or commas in the input boxes.
Use the negative sign for values that must be subtracted.
Retain Truck Replace Truck
$Answer
$Answer
$Answer
$Answer
Additional contribution margin $Answer
$Answer
Cost of new truck
$Answer
$Answer
Sale of old truck
$Answer
$Answer
Total Costs
$Answer
$Answer
Repair and maintenance costs
Waste
Should they retain their old truck or replace it? AnswerRetain Replace
Transcribed Image Text:Blue Sky Catering is considering whether to retain or replace its aging delivery truck. The old truck originally cost $58,000 when it was purchased nine years ago. It has a book value of $7,000. According to the mechanic who serviced the truck during its last oil change, the old truck has 3 years of useful life left. Blue Sky Catering wants to purchase a brand-new truck. The new truck costs $62,000 and has a 10-year useful life, after which it will have no salvage value. The new truck is a little larger and would accommodate larger jobs, leading to an additional $10,000 per year in contribution margin. It would also have a refrigerated section that would reduce waste by $500 each year. As the truck will be new, repairs and maintenance costs will also decrease from $2,100 to $1,300 annually. The old truck can be sold for $8,000. Prepare a quantitative analysis to determine whether or not to purchase the new truck. Do not enter dollar signs or commas in the input boxes. Use the negative sign for values that must be subtracted. Retain Truck Replace Truck $Answer $Answer $Answer $Answer Additional contribution margin $Answer $Answer Cost of new truck $Answer $Answer Sale of old truck $Answer $Answer Total Costs $Answer $Answer Repair and maintenance costs Waste Should they retain their old truck or replace it? AnswerRetain Replace
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