The TechGuide Company produces and sells 7,500 modular computer desks per year at a selling price of $750 each. Its current production equipment, purchased for $1,800,000 and with a five-year useful life, is only two years old. It has a terminal disposal value of $0 and is depreciated on a straight-line basis. The equipment has a current disposal price of $450,000. However, the emergence of a new molding technology has led TechGuide to consider either up- grading or replacing the production equipment. The following table presents data for the two alternatives: Home Insert Page Layout Formulas Data Review Upgrade $3,000,000 Replace $4,800,000 2 One-time equipment costs 3 Variable manufacturing cost per desk 4 Remaining useful life of equipment (in years) 5 Terminal disposal value of equipment 150 75 3 3 24 24
The TechGuide Company produces and sells 7,500 modular computer desks per year at a selling price of $750 each. Its current production equipment, purchased for $1,800,000 and with a five-year useful life, is only two years old. It has a terminal disposal value of $0 and is depreciated on a straight-line basis. The equipment has a current disposal price of $450,000. However, the emergence of a new molding technology has led TechGuide to consider either up- grading or replacing the production equipment. The following table presents data for the two alternatives: Home Insert Page Layout Formulas Data Review Upgrade $3,000,000 Replace $4,800,000 2 One-time equipment costs 3 Variable manufacturing cost per desk 4 Remaining useful life of equipment (in years) 5 Terminal disposal value of equipment 150 75 3 3 24 24
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter12: Capital Investment Decisions
Section: Chapter Questions
Problem 51P: Newmarge Products Inc. is evaluating a new design for one of its manufacturing processes. The new...
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All equipment costs will continue to be
Q.Assume that the capital expenditures to replace and upgrade the production equipment are as given in the original exercise, but that the production and sales quantity is not known. For what production and sales quantity would TechGuide (i) upgrade the equipment or (ii) replace the equipment?
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