eet (SS) Company produces and sells 7,000 specialty Treats per year at a se 350 each. Its current production equipment, purchased for $1,850,000 and v useful life, is only two years old. It has a terminal disposal value of $0 and i d on a straight-line basis. The equipment has a current disposal price of $50

eet (SS) Company produces and sells 7,000 specialty Treats per year at a se 350 each. Its current production equipment, purchased for $1,850,000 and v useful life, is only two years old. It has a terminal disposal value of $0 and i d on a straight-line basis. The equipment has a current disposal price of $50

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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Question

Assume that the capital expenditures to replace and upgrade the production equipment are
as given in the original exercise, but that the production and sales quantity is not known. For
what production and sales quantity would SS (i) upgrade the equipment or (ii) replace the equipment?

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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