QS 25-15 (Algo) Keep or replace LO P5 Rory Company has an old machine with a book value of $85,000 and a remaining five-year useful life. Rory is considering purchasing a new machine at a price of $112,000. Rory can sell its old machine now for $61,000. The old machine has variable manufacturing costs of $40,000 per year. The new machine will reduce variable manufacturing costs by $16,000 per year over its five-year useful life. (a) Prepare a keep or replace analysis of income effects for the machines. (b) Should the old machine be replaced? Complete this question by entering your answers in the tabs below. Required A Required B Prepare a keep or replace analysis of income effects for the machines. Keep or Replace Analysis Keep Replace Income Increase (Decrease) if replaced Revenues Sale of existing machine $ 0 $ 61,000 Costs Purchase of new machine $ 0 Variable manufacturing costs $ 200,000 112,000 120,000 Income (loss) $ (200,000) < Required A Required B >

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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QS 25-15 (Algo) Keep or replace LO P5
Rory Company has an old machine with a book value of $85,000 and a remaining five-year useful life. Rory is considering purchasing a
new machine at a price of $112,000. Rory can sell its old machine now for $61,000. The old machine has variable manufacturing costs
of $40,000 per year. The new machine will reduce variable manufacturing costs by $16,000 per year over its five-year useful life.
(a) Prepare a keep or replace analysis of income effects for the machines.
(b) Should the old machine be replaced?
Complete this question by entering your answers in the tabs below.
Required A
Required B
Prepare a keep or replace analysis of income effects for the machines.
Replace
Income Increase
(Decrease) if replaced
Keep or Replace Analysis
Keep
Revenues
Sale of existing machine
$
0 $
61,000
Costs
Purchase of new machine
$
0
Variable manufacturing costs
$
200,000
112,000
120,000
Income (loss)
$
(200,000)
< Required A
Required B >
Transcribed Image Text:QS 25-15 (Algo) Keep or replace LO P5 Rory Company has an old machine with a book value of $85,000 and a remaining five-year useful life. Rory is considering purchasing a new machine at a price of $112,000. Rory can sell its old machine now for $61,000. The old machine has variable manufacturing costs of $40,000 per year. The new machine will reduce variable manufacturing costs by $16,000 per year over its five-year useful life. (a) Prepare a keep or replace analysis of income effects for the machines. (b) Should the old machine be replaced? Complete this question by entering your answers in the tabs below. Required A Required B Prepare a keep or replace analysis of income effects for the machines. Replace Income Increase (Decrease) if replaced Keep or Replace Analysis Keep Revenues Sale of existing machine $ 0 $ 61,000 Costs Purchase of new machine $ 0 Variable manufacturing costs $ 200,000 112,000 120,000 Income (loss) $ (200,000) < Required A Required B >
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