17. A commercial oven with a book value of $19,390 has an estimated remaining 5
ID: 2599336 • Letter: 1
Question
17. A commercial oven with a book value of $19,390 has an estimated remaining 5 year life. A proposal is offered to sell the oven for $6,060 and replace it with a new oven costing $34,640. The new machine has a 5-year life with no residual value. The new machine would reduce annual maintenance costs by $6,660.
Provide a differential analysis on the proposal to replace the commercial oven.
Annual maintenance cost reduction $ Number of years applicable Total differential decrease in cost $ Proceeds from sale of equipment $ Cost of new equipment Net differential decrease in cost from replacing equipment $Explanation / Answer
Annual maintenance cost reduction 6660 Number of years applicable 5 Total differential decrease in cost 33300 Proceeds from sale of equipment 6060 39360 Cost of new equipment 34640 Net differential decrease in cost from replacing equipment 4720