Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $49,000 and a remaining useful life of five years. It can be sold now for $59,000. Variable manufacturing costs are $49,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is five years. Purchase price Variable manufacturing costs per year (a) Compute the income increase or decrease from replacing the old machine with Machine A. (b) Compute the income increase or decrease from replacing the old machine with Machine B. (c) Should Lopez keep or replace its old machine? (d) If the machine should be replaced, which new machine should Lopez purchase? Req A Complete this question by entering your answers in the tabs below. Req B Req C and D Machine A: Keep or Replace Analysis Revenues Sale of existing machine Costs Compute the income increase or decrease from replacing the old machine with Machine A. (Amounts to be deducted should be indicated with a minus sign.) Purchase of new machine Variable manufacturing costs Income (loss) Machine A $ 116,000 21,000 $ Keep < Req A $ 0 $ Machine B $ 128,000 13,000 Replace 59,000 Income Increase (Decrease) from Replacing 59,000 $ Req B > 59,000
Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $49,000 and a remaining useful life of five years. It can be sold now for $59,000. Variable manufacturing costs are $49,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is five years. Purchase price Variable manufacturing costs per year (a) Compute the income increase or decrease from replacing the old machine with Machine A. (b) Compute the income increase or decrease from replacing the old machine with Machine B. (c) Should Lopez keep or replace its old machine? (d) If the machine should be replaced, which new machine should Lopez purchase? Req A Complete this question by entering your answers in the tabs below. Req B Req C and D Machine A: Keep or Replace Analysis Revenues Sale of existing machine Costs Compute the income increase or decrease from replacing the old machine with Machine A. (Amounts to be deducted should be indicated with a minus sign.) Purchase of new machine Variable manufacturing costs Income (loss) Machine A $ 116,000 21,000 $ Keep < Req A $ 0 $ Machine B $ 128,000 13,000 Replace 59,000 Income Increase (Decrease) from Replacing 59,000 $ Req B > 59,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $49,000 and a
remaining useful life of five years. It can be sold now for $59,000. Variable manufacturing costs are $49,000 per year for this old
machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is five
years.
Purchase price
Variable manufacturing costs per year
(a) Compute the income increase or decrease from replacing the old machine with Machine A.
(b) Compute the income increase or decrease from replacing the old machine with Machine B.
(c) Should Lopez keep or replace its old machine?
(d) If the machine should be replaced, which new machine should Lopez purchase?
Req A
Complete this question by entering your answers in the tabs below.
Req B
Req C and D
Machine A: Keep or Replace Analysis
Revenues
Sale of existing machine
Costs
Compute the income increase or decrease from replacing the old machine with Machine A. (Amounts to be deducted should be
indicated with a minus sign.)
Purchase of new machine
Variable manufacturing costs
Income (loss)
Machine A
$ 116,000
21,000
$
Keep
< Req A
$
0 $
Machine B
$ 128,000
13,000
Replace
59,000
Income Increase
(Decrease) from
Replacing
59,000 $
Req B >
59,000
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