Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $46,000 and a remaining useful life of five years. It can be sold now for $56,000. Variable manufacturing costs are $43,000 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 Machine A $ 123,000 19,000 Machine B $136,000 15,000 (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? Complete this question by entering your answers in the tabs below. Req A Req B Req C and D Compute the income increase or decrease from replacing the old machine with Machine B. Note: Amounts to be deducted should be indicated with a minus sign. Machine B: Keep or Replace Analysis Keep Revenues Sale of existing machine Replace Income Increase (Decrease) from Replacing Costs Purchase of new machine Variable manufacturing costs Income (loss)
Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $46,000 and a remaining useful life of five years. It can be sold now for $56,000. Variable manufacturing costs are $43,000 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 Machine A $ 123,000 19,000 Machine B $136,000 15,000 (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? Complete this question by entering your answers in the tabs below. Req A Req B Req C and D Compute the income increase or decrease from replacing the old machine with Machine B. Note: Amounts to be deducted should be indicated with a minus sign. Machine B: Keep or Replace Analysis Keep Revenues Sale of existing machine Replace Income Increase (Decrease) from Replacing Costs Purchase of new machine Variable manufacturing costs Income (loss)
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 $46,000 and a
remaining useful life of five years. It can be sold now for $56,000. Variable manufacturing costs are $43,000 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
Machine A
$ 123,000
19,000
Machine B
$136,000
15,000
(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?
Complete this question by entering your answers in the tabs below.
Req A
Req B
Req C and D
Compute the income increase or decrease from replacing the old machine with Machine B.
Note: Amounts to be deducted should be indicated with a minus sign.
Machine B: Keep or Replace Analysis
Keep
Revenues
Sale of existing machine
Replace
Income Increase
(Decrease) from
Replacing
Costs
Purchase of new machine
Variable manufacturing costs
Income (loss)
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