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Bonita Company is considering the purchase of a new machine. The invoice price of the machine is $ 1 0 9 , 0 0 0
Bonita Company is considering the purchase of a new machine. The invoice price of the machine is $ freight charges are estimated to be $ and installation costs are expected to be $ The salvage value of the new equipment is expected to be zero after a useful life of years. The company could retain the existing equipment and use it for an additional years if it doesn't purchase the new machine. At that time, the equipment's salvage value would be zero. If Bonita purchases the new machine now, it would have to scrap the existing machine. Bonita's accountant, Linda Williams, has accumulated the following data for annual sales and expenses, with and without the new machine: Without the new machine, Bonita can sell units of product annually at a perunit selling price of $ If it purchases the new machine, the number of units produced and sold would increase by and the selling price would remain the same. The new machine is faster than the old machine, and it is more efficient in its use of materials. With the old machine, the gross profit rate is of sales, whereas the rate will be of sales with the new machine. Annual selling expenses are $ with the current machine. Because the new machine would produce a greater number of units to be sold, annual selling expenses are expected to increase by if it is purchased. Annual administrative expenses are expected to be $ with the old machine, and $ with the new machine. The current book value of the existing machine is $ Bonita uses straightline depreciation. Prepare an incremental analysis for the four years that shows whether Bonita should retain the existing machine or buy the new one. Ignore income tax effects.If an amount reduces the net income then enter with a negative sign preceding the number or parenthesis, eg Enter all other amounts as positive and subtract where necessary. Do not leave any answer field blank. Enter for amounts.Sales Less costs: Cost of goods sold Selling Administrative Operating income Buy New Machine Sales Less costs: Cost of goods sold Selling Administrative Operating incometabletableRetain OldMachinetableReplace OldMachinetableNet IncomeIncrease DecreaseOperating income,$$$Cost of the new machineTotals$$$ The new machine be purchased.
Bonita Company is considering the purchase of a new machine. The invoice price of the machine is $ freight charges are
estimated to be $ and installation costs are expected to be $ The salvage value of the new equipment is expected to be
zero after a useful life of years. The company could retain the existing equipment and use it for an additional years if it doesn't
purchase the new machine. At that time, the equipment's salvage value would be zero. If Bonita purchases the new machine now, it
would have to scrap the existing machine. Bonita's accountant, Linda Williams, has accumulated the following data for annual sales and
expenses, with and without the new machine:
Without the new machine, Bonita can sell units of product annually at a perunit selling price of $ If it purchases
the new machine, the number of units produced and sold would increase by and the selling price would remain the
same.
The new machine is faster than the old machine, and it is more efficient in its use of materials. With the old machine, the
gross profit rate is of sales, whereas the rate will be of sales with the new machine.
Annual selling expenses are $ with the current machine. Because the new machine would produce a greater
number of units to be sold, annual selling expenses are expected to increase by if it is purchased.
Annual administrative expenses are expected to be $ with the old machine, and $ with the new machine.
The current book value of the existing machine is $ Bonita uses straightline depreciation.
Prepare an incremental analysis for the four years that shows whether Bonita should retain the existing machine or buy the new one.
Ignore income tax effects.If an amount reduces the net income then enter with a negative sign preceding the number or parenthesis, eg
Enter all other amounts as positive and subtract where necessary. Do not leave any answer field blank. Enter for amounts.Sales
Less costs:
Cost of goods sold
Selling
Administrative
Operating income
Buy New Machine
Sales
Less costs:
Cost of goods sold
Selling
Administrative
Operating incometabletableRetain OldMachinetableReplace OldMachinetableNet IncomeIncrease DecreaseOperating income,$$$Cost of the new machineTotals$$$
The new machine be purchased.
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