Wonder Enterprises uses a special scanner in its operations. Lately sales have increased to the point that it takes extra hours of overtime at night and on weekends to keep up with customer demand. Management is considering purchasing a new faster model of scanner that would eliminate overtime and decrease some of the other operating costs. The following information is available:
Current Scanner
New Scanner
Original purchase cost
$100,000
$125,000
Accumulated depreciation
$30,000
Estimated annual operating costs (excluding depreciation)
$82,000
$64,000
Actual or projected annual depreciation on scanners
$10,000
$21,000
Nonmanufacturing operating expenses
$42,000
$42,000
Remaining useful life (in years)
5
5
Estimated salvage value at the end of useful life
$20,000
$20,000
Estimated current disposal value
$58,000
REQUIRED:
Part 1: Compute the gain or loss on the immediate sale of the old scanner.
Part 2: Prepare an incremental analysis report comparing the options of continuing with the current scanner or replacing it.
Part 3: What other factors should be considered before the final decision is reached?