Question
Louna Company is considering replacing a factory machine with a new one. It has a factory machine that originally costs $80,000. It has a balance
Louna Company is considering replacing a factory machine with a new one. It has a factory machine that originally costs $80,000. It has a balance in accumulated depreciation of $40,000. It has a remaining useful life of four years. A new machine is available that costs $120,000. It is expected to have zero salvage value at the end of its four-year useful life. If the new machine is acquired, quarterly variable manufacturing costs are expected to decrease from $32,500 to $22,500 and the old machine could be sold for $15,000.
Which of the following amounts is a sunk cost and irrelevant to the replacement decision? *
$120,000
$15,000
$40,000
None of the above
The total cost of retaining the old equipment: *
$520,000
$130,000
$40,000
None of the above
The total cost of replacing the old equipment: *
$120,000
$195,000
$465,000
None of the above
The net increase (decrease) in the net income of replacing the old equipment is: *
$(55,000)
$55,000
$(40,000)
None of the above
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