Keep Old Machine

Sales

$

Less costs:

Cost of goods sold

Selling

Administrative

Operating income

Buy New Machine

Sales

$

Less costs:

Cost of goods sold

Selling

Administrative

Operating income

$

Operating income

Cost of the new machine

Totals

Retain Old

Replace Old

Net Income

Machine

Machine

Increase $($Decrease$)$

$

$

The new machine

be purchased. Oriole Company is considering the purchase of a new machine. The invoice price of the machine is $$143,000,$ freight charges are estimated to be $$4,000,$ and installation costs are expected to be $$6,000.$ The salvage value of the new equipment is expected to be zero after a useful life of $5$ years. The company could retain the existing equipment and use it for an additional $5$ years if it doesn$$t purchase the new machine. At that time, the equipment$$s salvage value would be zero. If Oriole purchases the new machine now, it would have to scrap the existing machine. Oriole$$s accountant, Betty Harris, has accumulated the following data for annual sales and expenses, with and without the new machine:

$1.$ Without the new machine, Oriole can sell $12,000$ units of product annually at a per$-$unit selling price of $$100.$ If it purchases the new machine, the number of units produced and sold would increase by $10\%,$ and the selling price would remain the same.

$2.$ 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 $25\%$ of sales, whereas the rate will be $30\%$ of sales with the new machine.

$3.$ Annual selling expenses are $$184,000$ 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 $10\%$ if it is purchased.

$4.$ Annual administrative expenses are expected to be $$102,000$ with the old machine, and $$115,000$ with the new machine.

$5.$ The current book value of the existing machine is $$37,000.$ Oriole uses straight$-$line depreciation.

Prepare an incremental analysis for the five years that shows whether Oriole 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, e$.$g$.-15,000,(15,000).$ Enter all other amounts as positive and subtract where necessary. Do not leave any answer field blank. Enter $0$ for amounts.$)$