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Sales Salvage value old machine Depreciation of the old machine, or loss write-off Depreciation-new machine Operating costs Selling and administrative expenses Total expenses Net operating loss Net advantage 333333 of purchasing the new machine Keep Old Machine $ 1,680,000 0 80,000 0 16,000✔ 80,000 144,000 336,000 112,000 1,008,000✔ 1,008,000✔ 1,424,000 X$ 256,000 ummary $ 96,000 Buy New Machine $1,680,000 333333 1,344,000 X 336,000 $ Difference 0 16,000 0 (144,000) 224,000 0 2. Compute the net advantage of purchasing the new machine using only relevant costs in your analysis. (Do not round intermediate calculations.) 90000 80,000 x $ 96,000 3. What is the minimum saving in annual operating costs that must be achieved in order for the president to consider buying the new machine?

Sales Salvage value old machine Depreciation of the old machine, or loss write-off Depreciation-new machine Operating costs Selling and administrative expenses Total expenses Net operating loss Net advantage 333333 of purchasing the new machine Keep Old Machine $ 1,680,000 0 80,000 0 16,000✔ 80,000 144,000 336,000 112,000 1,008,000✔ 1,008,000✔ 1,424,000 X$ 256,000 ummary $ 96,000 Buy New Machine $1,680,000 333333 1,344,000 X 336,000 $ Difference 0 16,000 0 (144,000) 224,000 0 2. Compute the net advantage of purchasing the new machine using only relevant costs in your analysis. (Do not round intermediate calculations.) 90000 80,000 x $ 96,000 3. What is the minimum saving in annual operating costs that must be achieved in order for the president to consider buying the new machine?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Sales Salvage value old machine Depreciation of the old machine, or loss write-off Depreciation-new machine Operating costs Selling and administrative expenses Total expenses Net operating loss Net advantage of purchasing the new machine 5 Years Summary Buy New Machine $1,680,000 $ 16,000 80,000 144,000 336,000 112,000 1,008,000✔ 1,008,000 Keep Old Machine $1,680,000 $ 0 80,000 0 1,424,000 256,000 $ 96,000 Difference 1,344,000 x $ 336,000 $ 0 16,000 0 (144,000)✓ 224,000 2. Compute the net advantage of purchasing the new machine using only relevant costs in your analysis. (Do not round intermediate calculations.) 0 80,000 X 96,000 3. What is the minimum saving in annual operating costs that must be achieved in order for the president to consider buying the new machine?
Transcribed Image Text:Sales Salvage value old machine Depreciation of the old machine, or loss write-off Depreciation-new machine Operating costs Selling and administrative expenses Total expenses Net operating loss Net advantage of purchasing the new machine 5 Years Summary Buy New Machine $1,680,000 $ 16,000 80,000 144,000 336,000 112,000 1,008,000✔ 1,008,000 Keep Old Machine $1,680,000 $ 0 80,000 0 1,424,000 256,000 $ 96,000 Difference 1,344,000 x $ 336,000 $ 0 16,000 0 (144,000)✓ 224,000 2. Compute the net advantage of purchasing the new machine using only relevant costs in your analysis. (Do not round intermediate calculations.) 0 80,000 X 96,000 3. What is the minimum saving in annual operating costs that must be achieved in order for the president to consider buying the new machine?
Santosh Plastics Inc. purchased a new machine one year ago at a cost of $96,000. Although the machine operates well and has five more years of operating life, the president of Santosh Plastics is wondering if the company should replace it with a new electronic machine that has just come on the market. The new machine costs $144,000 and is expected to slash the current annual operating costs of $67,200 by two-thirds. The new machine is expected to last for five years, with zero salvage value at the end of five years. The current machine can be sold for $16,000 if the company decides to buy the new machine. The company uses straight-line depreciation. In trying to decide whether to purchase the new machine, the president has prepared the following analysis: Book value of the old machine Less: Salvage value Net loss from disposal $80,000 16,000 $64,000 "Even though the new machine looks good," said the president, "we can't get rid of that old machine if it means taking a huge loss on it. We'll have to use the old machine for at least a few more years." Sales are expected to be $336,000 per year, and selling and administrative expenses are expected to be $201,600 per year, regardless of which machine is used. Required: 1. Prepare a comparative income statement covering the next five years, assuming: a. The new machine is not purchased. b. The new machine is purchased. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.) Keep Old Machine 5 Years Summary Buy New Machine Difference
Transcribed Image Text:Santosh Plastics Inc. purchased a new machine one year ago at a cost of $96,000. Although the machine operates well and has five more years of operating life, the president of Santosh Plastics is wondering if the company should replace it with a new electronic machine that has just come on the market. The new machine costs $144,000 and is expected to slash the current annual operating costs of $67,200 by two-thirds. The new machine is expected to last for five years, with zero salvage value at the end of five years. The current machine can be sold for $16,000 if the company decides to buy the new machine. The company uses straight-line depreciation. In trying to decide whether to purchase the new machine, the president has prepared the following analysis: Book value of the old machine Less: Salvage value Net loss from disposal $80,000 16,000 $64,000 "Even though the new machine looks good," said the president, "we can't get rid of that old machine if it means taking a huge loss on it. We'll have to use the old machine for at least a few more years." Sales are expected to be $336,000 per year, and selling and administrative expenses are expected to be $201,600 per year, regardless of which machine is used. Required: 1. Prepare a comparative income statement covering the next five years, assuming: a. The new machine is not purchased. b. The new machine is purchased. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.) Keep Old Machine 5 Years Summary Buy New Machine Difference
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