Question

Rory Company has a machine with a book value of $101,000 and a remaining five-year useful life. A new machine is available at a cost of $116,000, and Rory can also receive $83,000 for trading in its old machine. The new machine will reduce variable manufacturing costs by $17,000 per year over its five-year useful life. Calculate the incremental income. (Any losses or outflows should be entered with a minus sign.)

Answer 1

Answer:

Incremental Income $52,000

Explanation:

The computation of the incremental income is shown below:

Reduction in variable manufacturing costs ($17,000 × 5) $85,000

Cost of the new machine -$116.000

Cash received from trade in old machine $83,000

Incremental Income $52,000

The machine should replacement as there is an increase in income by $52,000