Ltd. is currently faced with a critical decision regarding its production equipment. Cari Heat (CH) is evaluating two options for its production equipment: upgrading or replacing. The company manufactures and sells 7,500 heaters every year, each priced at $920. The current production equipment, which was acquired at a cost of $2,150,000, has been in use for just two years and is subject to straight-line depreciation over a five-year useful life. Furthermore, it possesses no terminal disposal value, but it can be currently sold for $650,000. The following table presents data for the two alternatives: : Upgrade One-time equipment costs= $3,500,000 Variable manufacturing cost per Heater =$180 Remaining useful life of equipment (years) =3 Terminal disposal value of equipment =0 Choice: Replace One-time equipment costs= $5,200,000 Variable manufacturing cost per Heater = $90 Remaining useful life of equipment (years) = 3 Terminal disposal value of equipment = 0 Required Prepare a schedule, for the remaining 3 years, reflecting whether CH should upgrade its production line or replace it?
Ltd. is currently faced with a critical decision regarding its production equipment. Cari Heat (CH) is evaluating two options for its production equipment: upgrading or replacing. The company manufactures and sells 7,500 heaters every year, each priced at $920. The current production equipment, which was acquired at a cost of $2,150,000, has been in use for just two years and is subject to straight-line depreciation over a five-year useful life. Furthermore, it possesses no terminal disposal value, but it can be currently sold for $650,000. The following table presents data for the two alternatives: : Upgrade One-time equipment costs= $3,500,000 Variable manufacturing cost per Heater =$180 Remaining useful life of equipment (years) =3 Terminal disposal value of equipment =0 Choice: Replace One-time equipment costs= $5,200,000 Variable manufacturing cost per Heater = $90 Remaining useful life of equipment (years) = 3 Terminal disposal value of equipment = 0 Required Prepare a schedule, for the remaining 3 years, reflecting whether CH should upgrade its production line or replace it?
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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Ltd. is currently faced with a critical decision regarding its production equipment. Cari Heat (CH) is evaluating two options for its production equipment: upgrading or replacing. The company manufactures and sells 7,500 heaters every year, each priced at $920. The current production equipment, which was acquired at a cost of $2,150,000, has been in use for just two years and is subject to straight-line depreciation over a five-year useful life. Furthermore, it possesses no terminal disposal value, but it can be currently sold for $650,000.
The following table presents data for the two alternatives:
: Upgrade
One-time equipment costs= $3,500,000
Variable manufacturing cost per Heater =$180
Remaining useful life of equipment (years) =3
Terminal disposal value of equipment =0
Choice: Replace
One-time equipment costs= $5,200,000
Variable manufacturing cost per Heater = $90
Remaining useful life of equipment (years) = 3
Terminal disposal value of equipment = 0
Required
Prepare a schedule, for the remaining 3 years, reflecting whether CH should upgrade its production line or replace it?
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