Ridley Company has a factory machine with a book value of $80,400 and a remaining useful life of 6 years. A new machine is available at a cost of $206,100. This machine will have a 6-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $580,600 to $384,400.
Prepare an analysis showing whether the old machine should be retained or replaced. (If an amount reduces the net income for Increase (Decrease) column then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000). Enter all other amounts in all other columns as positive and subtract where necessary.)
Retain
Equipment
Replace
Equipment
Net 6-Year
Income
Increase
(Decrease)
Variable manufacturing costs $ $ $
New machine cost
Total $ $ $