Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $50,000 and a remaining useful life of four years. It can be sold now for $60,000. Variable manufacturing costs are $44,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is four years.
|
Machine
A
|
Machine
B
|
Purchase Price
|
$116,000 |
$130,000 |
Variable manufacturing costs per year
|
20,000 |
14,000 |
(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?
*please correct my answers
Extracted text: Req A Req B Reg C and D Compute the income increase or decrease from replacing the old machine with Machine B. (Amounts to be deducted should be indicated with a minus sign.) Machine B: Keep or Replace Analysis Income Increase (Decrease) from Replacing Keep Replace Revenues Sale of existing machine 60,000 Costs Purchase of new machine (130,000) $ (200,000) 8 $ (200,000) (60,000) 8 $ (130,000) Variable manufacturing costs Income (loss) 70,000 %24
Extracted text: Reg A Req B Req C and D Compute the income increase or decrease from replacing the old machine with Machine A. (Amounts to be deducted should be indicated with a minus sign.) Income Increase Machine A: Keep or Replace Analysis Keep Replace (Decrease) from Replacing Revenues Sale of existing machine Costs 60,000 Purchase of new machine 116,000 $ (200,000) 8 $ (200,000) Variable manufacturing costs (96,000) 8 Income (loss) 80,000 2$ 280,000