Question

Starling Co. is considering disposing of a machine with a book value of $24,600 and estimated remaining life of five years. The old machine can be sold for $5,700. A new high-speed machine can be purchased at a cost of 65,300. It will have a useful life of five years and no residual value. It is estimated that the annual variable manufacturing costs will be reduced from $23,300 to $19,600 if the new machine is purchased. The five-year differential effect on profit from replacing the machine is a(n)

Answer 1

Answer:

The answer is "decrease of $41,100".

Explanation:

5-year cost-saving =$(23300-19600)\times 5 = \ 18,500$

old machine Sale value = $\ 5,700$

Differential effect on income = cost savings for 5 years +Sale value of old machine - purchase cost of the new machine  

$= 18500+ 5700 - 65300\\\\= - 41,100$