Last year (2016),BlueCondos installed a mechanized elevator for its tenants. The owner of the company, Ron Richter, recently returned from an industry equipment exhibition where he watched a computerized elevator demonstrated. He was impressed with the elevator's speed, comfort of ride, and cost efficiency. Upon returning from the exhibition, he asked his purchasing agent to collect price and operating cost data on the new elevator. In addition, he asked the company's accountant to provide him with cost data on the company's elevator. This information is presented below.

Old Elevator New Elevator

Purchase price$102,500 $159,000

Estimated salvage value 0 0

Estimated useful life 5 years 4 years Depreciation method Straight-line Straight-line Annual operating costs

other than depreciation: Variable $34,000 $9,000

Fixed 23,400 8,000

Annual revenues are $240,000, and selling and administrative expenses are $28,000, regardless of which elevator is used. If the old elevator is replaced now, at the beginning of 2017,BlueCondos will be able to sell it for $25,100.

Determine any gain or loss if the old elevator is replaced.

Gain on sale

Loss on sale

$

4-year summarized income statement for each of the following assumptions:

(1) The old elevator is retained.

Retain Old Elevator

Revenues$ Less costs: Variable costs$

Fixed costs Selling & administrative Depreciation Net income$

(2) The old elevator is replaced.

Replace Old Elevator

Revenues$ Less costs:Variable costs$Fixed costsSelling & administrativeDepreciationOperating incomeLess: Loss on old elevatorNet income$

Using incremental analysis, determine if the old elevator should be replaced.(Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Retain

Old ElevatorReplace

Old ElevatorNet Income

Increase

(Decrease)Variable operating costs$$$Fixed operating costsNew elevator costSalvage on old elevatorTotals$$$

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