Blue Sky Catering is considering whether to retain or replace its aging delivery truck. The old truck originally cost $60,000 when it was purchased nine years ago. It has a book value of $6,000. According to the mechanic who serviced the truck during its last oil change, the old truck has 4 years of useful life left. Blue Sky Catering wants to purchase a brand-new truck. The new truck costs $68,000 and has a 10-year useful life, after which it will have no salvage value. The new truck is a litt 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 $600 each year. As the truck will be new, repairs and maintenance costs will also decrease from $2,300 to $1,400 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 Repair and maintenance costs $ Waste Additional contribution margin $ Cost of new truck Sale of old truck $ Total Costs $ $ Should they retain their old truck or replace it? $ $ S $ $ Replace Truck ◆

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Transcribed Image Text:Blue Sky Catering is considering whether to retain or replace its aging delivery truck. The old truck originally cost $60,000 when it was purchased nine years ago. It has a book value of $6,000. According to the mechanic who serviced the truck during its last oil change, the old truck has 4 years of useful life left. Blue Sky Catering wants to purchase a brand-new truck. The new truck costs $68,000 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 $600 each year. As the truck will be new, repairs and maintenance costs will also decrease from $2,300 to $1,400 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 Repair and maintenance costs $ Waste Additional contribution margin $ Cost of new truck Sale of old truck $ Total Costs $ $ $ Should they retain their old truck or replace it? $ $ $ $ $ $ Replace Truck ◆

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