Old Machine New Machine Original cost $10,800 $8,800 Useful life 9 years 4 years 5 years S4,800 5 years O years Current age Remaining useful life Accumulated depreciation 5 years Not acquired yet Not acquired yet Not acquired yet Book value S6,000 Current disposal value (in cash) Terminal disposal value (5 years from now) Annual cash operating costs $2,800 SO $15,000 $0 $18,000 RT Manufacturing uses straight-line depreciation. Ignore the time value of money and income taxes. Should RT Manufacturing replace the old machine? Explain.
Old Machine New Machine Original cost $10,800 $8,800 Useful life 9 years 4 years 5 years S4,800 5 years O years Current age Remaining useful life Accumulated depreciation 5 years Not acquired yet Not acquired yet Not acquired yet Book value S6,000 Current disposal value (in cash) Terminal disposal value (5 years from now) Annual cash operating costs $2,800 SO $15,000 $0 $18,000 RT Manufacturing uses straight-line depreciation. Ignore the time value of money and income taxes. Should RT Manufacturing replace the old machine? Explain.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Relevant and irrelevant costs. Answer the following questions.
- Robinson Computers makes 5,700 units of a circuit board, CB76, at a cost of $230 each. Variable cost per unit is $180 and fixed cost per unit is $50. Peach Electronics offers to supply 5,700 units of CB76 for $210. If Robinson buys from Peach, it will be able to save $20 per unit in fixed costs but continue to incur the remaining $30 per unit. Should Robinson accept Peach’s offer? Explain.
- RT Manufacturing is deciding whether to keep or replace an old machine. It obtains the following information:
Transcribed Image Text:Old Machine
New Machine
Original cost
$10,800
$8,800
Useful life
9 years
4 years
5 years
S4,800
5 years
O years
Current age
Remaining useful life
Accumulated depreciation
5 years
Not acquired yet
Not acquired yet
Not acquired yet
Book value
S6,000
Current disposal value (in cash)
Terminal disposal value (5 years from now)
Annual cash operating costs
$2,800
SO
$15,000
$0
$18,000
RT Manufacturing uses straight-line depreciation. Ignore the time value of money and income taxes.
Should RT Manufacturing replace the old machine? Explain.
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