Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $50,000 and a remaining useful life of four years. It can be sold now for $60,000. Variable manufacturing costs are $44,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is four years. Machine AMachine BPurchase Price$116,000$130,000Variable manufacturing costs per year20,00014,000(a) Compute the income increase or decrease from replacing the old machine with Machine A.(b) Compute the income increase or decrease from replacing the old machine with Machine B.(c) Should Lopez keep or replace its old machine?(d) If the machine should be replaced, which new machine should Lopez purchase?*please correct my answers Req AReq BReg C and DCompute the income increase or decrease from replacing the old machine with Machine B. (Amounts to be deducted should beindicated with a minus sign.)Machine B: Keep or ReplaceAnalysisIncome Increase(Decrease) fromReplacingKeepReplaceRevenuesSale of existing machine60,000CostsPurchase of new machine(130,000)$ (200,000) 8$ (200,000)(60,000) 8$ (130,000)Variable manufacturing costsIncome (loss)70,000%24 Reg AReq BReq C and DCompute the income increase or decrease from replacing the old machine with Machine A. (Amounts to be deducted should beindicated with a minus sign.)Income IncreaseMachine A: Keep or ReplaceAnalysisKeepReplace(Decrease) fromReplacingRevenuesSale of existing machineCosts60,000Purchase of new machine116,000$ (200,000) 8$ (200,000)Variable manufacturing costs(96,000) 8Income (loss)80,0002$280,000

In the companies that are involved with the manufacture of goods, machinery is an important asset…

Answered: Lopez Company is considering replacing…

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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Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $50,000 and a remaining useful life of four years. It can be sold now for $60,000. Variable manufacturing costs are $44,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is four years.

	Machine A	Machine B
Purchase Price	$116,000	$130,000
Variable manufacturing costs per year	20,000	14,000

(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?

*please correct my answers

Req A
Req B
Reg C and D
Compute the income increase or decrease from replacing the old machine with Machine B. (Amounts to be deducted should be
indicated with a minus sign.)
Machine B: Keep or Replace
Analysis
Income Increase
(Decrease) from
Replacing
Keep
Replace
Revenues
Sale of existing machine
60,000
Costs
Purchase of new machine
(130,000)
$ (200,000) 8
$ (200,000)
(60,000) 8
$ (130,000)
Variable manufacturing costs
Income (loss)
70,000
%24

Reg A
Req B
Req C and D
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.)
Income Increase
Machine A: Keep or Replace
Analysis
Keep
Replace
(Decrease) from
Replacing
Revenues
Sale of existing machine
Costs
60,000
Purchase of new machine
116,000
$ (200,000) 8
$ (200,000)
Variable manufacturing costs
(96,000) 8
Income (loss)
80,000
2$
280,000

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