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Last year, Kingbird Condos installed a mechanized elevator for its tenants. The owner of the company, Donald Martin, recently returned from an industry equipment exhibition
Last year, Kingbird Condos installed a mechanized elevator for its tenants. The owner of the company, Donald Martin, recently returned from an industry equipment exhibition where he watched a computerized elevator demonstrated. He was impressed with the elevator's speed, comfortable 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 existing elevator. The information is presented below: Old Elevator New Elevator Purchase price $124,200 $180,000 Estimated salvage value 0 0 Estimated useful life 6 years 5 years Depreciation method Straight-line Straight-line Annual operating expenses other than depreciation: Variable $35,300 $12,600 Fixed 23,400 8,100 Annual revenues are $239,400 and selling and administrative expenses are $29,900, regardless of which elevator is used. If it replaces the old elevator now, at the beginning of 2022, Kingbird Condos will be able to sell it for $24,600. Determine any gain or loss if the old elevator is replaced. If the old elevator is replaced Kingbird Condos will incur a of $ Prepare a 5-year summarized income statement for each of the following assumptions: (1) The old elevator is kept. Sales $ $ Less costs: Variable operating costs $ Fixed operating costs Selling and administrative Depreciation Net income $ LA (2) The old elevator is replaced. Sales $ Less costs: Variable operating costs $ Fixed operating costs Selling and administrative Depreciation Operating income Less: Loss on old elevator Net income $ Using incremental analysis, determine whether the old elevator should be replaced. (If an amount reduces the net income then enter with a negative sign preceding the number, e.g.-15,000 or parenthesis, e.g. (15,000).) Retain Old Elevator Replace Old Elevator Net Income Increase (Decrease) Variable operating costs $ $ $ Fixed operating costs New elevator cost Salvage on old elevator Totals $ CA $ $ The old elevator be replaced
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