Homework answers / question archive / Solution of this problem Murl Plastics Inc

Solution of this problem Murl Plastics Inc

Accounting

Share With

---

Solution of this problem

Murl Plastics Inc. purchased a new machine one year ago at a cost of $81,000. Although the machine operates well, the president of Murl Plastics is wondering if the company should replace it with a new electronic machine that has just come on the market. The new machine would slash annual operating costs by two-thirds, as shown in the comparative data below:

 

 

"Even though the new machine looks good," said the president, "we can't get rid of that old machine if it means taking a huge loss on it. We'll have to use the old machine for at least a few more years."

Sales are expected to be $283,500 per year, and selling and administrative expenses are expected to be $170,100 per year, regardless of which machine is used.

 

Required:

1)Prepare a summary income statement covering the next five years, assuming the following:

a. The new machine is not purchased.

b. The new machine is purchased.   (Leave no cells blank - be certain to enter "0" wherever required.)

??2) Compute the net advantage of purchasing the new product using relevant costs.