E9-11
Twyla Enterprises uses a computer to handle its sales invoices. Lately,
business has been so good that it takes an extra 3 hours per night, plus every
third Saturday, to keep up with the volume of sales invoices. Management is
considering updating its computer with a faster model that would eliminate all
of the overtime processing.
|
|
Current Machine
|
New Machine
|
|
Original purchase cost
|
$15,000
|
$25,000
|
|
Accumulated depreciation
|
$ 6,000
|
—
|
|
Estimated annual operating costs
|
$24,000
|
$18,000
|
|
Useful life
|
5 years
|
5 years
|
If
sold now, the current machine would have a salvage value of $5,000. If operated
for the remainder of its useful life, the current machine would have zero
salvage value. The new machine is expected to have zero salvage value after
five years.
Instructions
Should
the current machine be replaced?PREVIEW [EXCEL TEMPLATE]
EXERCISE
9-11
|
Decision
|
Net Income
|
|||
|
Retain
|
Replace
|
Increase
|
||
|
Machine
|
Machine
|
(Decrease)
|
||
|
Operating costs
|
$120,000
|
90,000
|
$30,000
|
5 year period
|
File name: E9-11-Twyla.xls File type: application/vnd.ms-excel PRICE: $5
