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Finch Freight Company owns a truck that cost $41,000. Currently, the truck's book value is $24,000, and its expected remaining useful life is four years. Finch has the opportunity to purchase for $30,500 a replacement truck that is extremely fuel efficient. Fuel cost for the old truck is expected to be $6,100 per year more than fuel cost for the new truck. The old truck is paid for but, in spite of being in good condition, can be sold for only $18,000. Required Calculate the total relevant costs. Should Finch replace the old truck with the new fuel-efficient model, or should it continue to use the old truck until it wears out? Replace With New Keep Old Total relevant costs 2$ 42,400 Should Finch replace or continue the old truck? Replace the old truck.

Finch Freight Company owns a truck that cost $41,000. Currently, the truck's book value is $24,000, and its expected remaining useful life is four years. Finch has the opportunity to purchase for $30,500 a replacement truck that is extremely fuel efficient. Fuel cost for the old truck is expected to be $6,100 per year more than fuel cost for the new truck. The old truck is paid for but, in spite of being in good condition, can be sold for only $18,000. Required Calculate the total relevant costs. Should Finch replace the old truck with the new fuel-efficient model, or should it continue to use the old truck until it wears out? Replace With New Keep Old Total relevant costs 2$ 42,400 Should Finch replace or continue the old truck? Replace the old truck.

FINANCIAL ACCOUNTING
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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### Finch Freight Company Truck Decision Analysis **Scenario:** Finch Freight Company owns a truck that originally cost $41,000. Currently, the truck's book value is $24,000, with an expected remaining useful life of four years. Finch has the opportunity to buy a new, extremely fuel-efficient truck for $30,500. The fuel cost for the old truck is anticipated to be $6,100 per year more than the fuel cost for the new truck. Although the old truck has been fully paid for, it can be sold for only $18,000 despite being in good condition. **Objective:** Calculate the total relevant costs to decide whether Finch should replace the old truck with the new model or continue using the old truck until it reaches the end of its useful life. **Analysis:** The table below summarizes the calculations/decisions: | | Keep Old | Replace With New | |-------------------------|----------|------------------| | Total relevant costs | $42,400 | | | Decision | Replace the old truck | ### Explanation: - The "Keep Old" option's total relevant costs are calculated to be $42,400. - It is recommended to "Replace the old truck" based on the cost comparison, implying that replacing the truck would be more economical over its lifecycle considering the fuel efficiency savings.
Transcribed Image Text:### Finch Freight Company Truck Decision Analysis **Scenario:** Finch Freight Company owns a truck that originally cost $41,000. Currently, the truck's book value is $24,000, with an expected remaining useful life of four years. Finch has the opportunity to buy a new, extremely fuel-efficient truck for $30,500. The fuel cost for the old truck is anticipated to be $6,100 per year more than the fuel cost for the new truck. Although the old truck has been fully paid for, it can be sold for only $18,000 despite being in good condition. **Objective:** Calculate the total relevant costs to decide whether Finch should replace the old truck with the new model or continue using the old truck until it reaches the end of its useful life. **Analysis:** The table below summarizes the calculations/decisions: | | Keep Old | Replace With New | |-------------------------|----------|------------------| | Total relevant costs | $42,400 | | | Decision | Replace the old truck | ### Explanation: - The "Keep Old" option's total relevant costs are calculated to be $42,400. - It is recommended to "Replace the old truck" based on the cost comparison, implying that replacing the truck would be more economical over its lifecycle considering the fuel efficiency savings.
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