Managerial Accounting: Tools for Business Decision Making
7th Edition
ISBN: 9781118334331
Author: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
Publisher: WILEY
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Chapter 7, Problem 7.14E
Use incremental analysis for retaining or replacing equipment decision.
(LO 5), AN
Johnson 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 | $25,000 | $20,000 |
| Remaining useful life | 5 years | 5 years |
If sold now. the current machine would have a salvage value of $6.000. 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 5 years.
Instructions
Should the current machine be replaced?
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Blossom 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
$14,500
$24,500
Accumulated depreciation
$5,000
_
Estimated annual operating costs
$24,500
$19,500
Remaining useful life
5 years
5 years
If sold now, the current machine would have a salvage value of $9,500. 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 5 years.Prepare an incremental analysis to determine whether the current machine should be replaced. (In the first two columns, enter costs and expenses as positive…
Blossom 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
$15,200
$25,400
Accumulated depreciation
$5,000
Estimated annual operating costs
$24,500
$19,500
Remaining useful life
5 years
5 years
If sold now, the current machine would have a salvage value of $11,100. 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 5 years.
Prepare an incremental analysis to determine whether the current machine should be replaced. (In the first two
columns, enter costs and expenses as positive amounts, and any amounts received as negative amounts. In
the third column,…
Current Attempt in Progress
Kingbird Enterprises uses a computer to handle its sales invoices. Lately, business has been so good that it takes an extra three 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. Data for the two computers are as follows:
Current Computer New Computer
Original purchase cost
$14,500
$25,400
Accumulated depreciation
$6,300
$0
Estimated operating costs
Useful life
$23,700
$19,600
5 years
5 years
If sold now, the current computer would have a salvage value of $10,500. If it is used for the remainder of its useful life, the current
computer would have zero salvage value. The new computer is expected to have zero salvage value after five years.
Determine whether the current computer should be replaced. (Ignore the time value of money.)
Current computer should be
The incremental analysis shows that net…
Chapter 7 Solutions
Managerial Accounting: Tools for Business Decision Making
Ch. 7 - What steps are frequently involved in managements...Ch. 7 - Prob. 2QCh. 7 - Incremental analysis involves the accumulation of...Ch. 7 - Sydney Greene asks for your help concerning the...Ch. 7 - What data are relevant in deciding whether to...Ch. 7 - Prob. 6QCh. 7 - Prob. 7QCh. 7 - Prob. 8QCh. 7 - What are joint products? What accounting issue...Ch. 7 - Prob. 10Q
Ch. 7 - Your roommate. Gale Dunham, is confused about sunk...Ch. 7 - Prob. 12QCh. 7 - The steps in managements decision-making process...Ch. 7 - Determine incremental changes. (LO 1), AP Bogart...Ch. 7 - At Bargain Electronics, it costs 30 per unit (20...Ch. 7 - Prob. 7.4BECh. 7 - Prob. 7.5BECh. 7 - Prob. 7.6BECh. 7 - Prob. 7.7BECh. 7 - Lisah, Inc., manufactures golf clubs in three...Ch. 7 - Nathan T Corporation is comparing two different...Ch. 7 - Prob. 7.2DICh. 7 - Wilma Company must decide whether to make or buy...Ch. 7 - Prob. 7.4DICh. 7 - Prob. 7.5DICh. 7 - Prob. 7.6DICh. 7 - As a study aid. your classmate Pascal Adams has...Ch. 7 - Use incremental analysis for special-order...Ch. 7 - Moonbeam Company manufactures toasters. For the...Ch. 7 - Prob. 7.4ECh. 7 - Prob. 7.5ECh. 7 - Use incremental analysis for make-or-buy decision....Ch. 7 - Prob. 7.7ECh. 7 - Prepare incremental analysis concerning...Ch. 7 - Anna Garden recently opened her own basketweaving...Ch. 7 - Stahl Inc. produces three separate products from a...Ch. 7 - Kirk Minerals processes materials extracted from...Ch. 7 - Prob. 7.12ECh. 7 - On January 2, 2016, Twilight Hospital purchased a...Ch. 7 - Use incremental analysis for retaining or...Ch. 7 - Veronica Mars, a recent graduate of Bells...Ch. 7 - Cawley Company makes three models of lasers....Ch. 7 - Tharp Company operates a small factory in which it...Ch. 7 - Identify relevant costs for different decisions....Ch. 7 - ThreePoint Sports Inc. manufactures basketballs...Ch. 7 - Use incremental analysis related to make or buy....Ch. 7 - Prob. 7.3APCh. 7 - Compute gain or loss, and determine if equipment...Ch. 7 - Brislin Company has four operating divisions....Ch. 7 - CURRENT DESIGNS Current Designs faces a number of...Ch. 7 - Decision-Making Across the Organization Aurora...Ch. 7 - MiniTek manufactures private-label small...Ch. 7 - Prob. 7.3BYPCh. 7 - Communication Activity Hank Jewell is a production...Ch. 7 - Prob. 7.6BYPCh. 7 - Prob. 7.7BYPCh. 7 - Considering Your Costs and Benefits School costs...
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