our Company has a machine that it uses to make 200,000 units of a component used in its final product. The cost of the machine was $60,000. The machine has a useful life of 5 years and a salvage value of zero at the end of those five years. Annual depreciation on the machine is $12,000. One year of depreciation has been recorded. The per unit variable manufacturing cost of producing the component is $0.05. The only fixed manufacturing cost is the annual depreciation of $12,000 on the stamping machine. Another Company recently offer to supply all of this component for the next four years at $0.07 per unit. If Your Company accepts the offer, the machine would not be needed and could be sold for $35,000. If the order is accepted, what is the total increase or decrease in income over the next four years?
our Company has a machine that it uses to make 200,000 units of a component used in its final product. The cost of the machine was $60,000. The machine has a useful life of 5 years and a salvage value of zero at the end of those five years. Annual depreciation on the machine is $12,000. One year of depreciation has been recorded. The per unit variable manufacturing cost of producing the component is $0.05. The only fixed manufacturing cost is the annual depreciation of $12,000 on the stamping machine. Another Company recently offer to supply all of this component for the next four years at $0.07 per unit. If Your Company accepts the offer, the machine would not be needed and could be sold for $35,000. If the order is accepted, what is the total increase or decrease in income over the next four years?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Your Company has a machine that it uses to make 200,000 units of a component used in its final product. The cost of the machine was $60,000. The machine has a useful life of 5 years and a salvage value of zero at the end of those five years. Annual depreciation on the machine is $12,000. One year of depreciation has been recorded. The per unit variable manufacturing cost of producing the component is $0.05. The only fixed manufacturing cost is the annual depreciation of $12,000 on the stamping machine. Another Company recently offer to supply all of this component for the next four years at $0.07 per unit. If Your Company accepts the offer, the machine would not be needed and could be sold for $35,000. If the order is accepted, what is the total increase or decrease in income over the next four years?
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