Dinkins Inc. is considering disposing of a machine with a book value of $50,000
ID: 2393377 • Letter: D
Question
Dinkins Inc. is considering disposing of a machine with a book value of $50,000 and an estimated remaining life of five years. The old machine can be sold for $15,000. A new machine with a purchase price of $150,000 is being considered as a replacement. It will have a useful life of five years and no residual value. It is estimated that variable manufacturing costs will be reduced from $70,000 to $45,000 if the new machine is purchased.
Determine the net differential increase or decrease in cost for the entire five years for the new equipment.
Explanation / Answer
Working:
Net diffenrential decrease in cost over 5 years 25000