Question

Widgets Inc. is thinking about replacing a piece of manufacturing equipment with a remaining useful life of three years. The book value of the equipment is $25,000, and the machine could be sold in its current condition for $7,000. The new machine would cost $83,000 and would have no salvage value at the end of its three-year useful life. With the new machine, Widgets’ variable manufacturing costs would drop from $189,500 to $169,900 per year. If Widgets opts to buy the new machine,
(A) it will see a $58,800 increase in income over the next three years.
(B) it will be recording a loss of $25,000 on the current machine.
(C) it will see a $24,200 decrease in income over the next three years.
(D) its total variable manufacturing costs over the next three years will be $58,800 lower than with the current machine.

Answer 1

Answer:

D. Its total variable manufacturing costs over the next three years will be $58,800 lower than with the current machine.