Last year, Pizza hut bought a new commercial oven for the restaurant. Don the manager went to another restaurant to see the oven. He was impressed with the cost-efficiency. Upon returning he asked his purchasing agent to collect price and operating cost data on the oven. he also asked the company's accountant to provide him with cost data on the existing old oven. See this below...

		Old oven		New oven
	Purchase price	$125,400		$179,000
	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	$35,800		$11,700
	Fixed	23,000		9,000

the annual revenues are $239,700 and selling and administrative expenses are $29,500, regardless of which oven is used. If it replaces the old oven now, at the beginning of 2022, pizza hut will be able to sell it for $25,000.

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

If the old oven is replaced pizza hut will incur a profit or loss of $_____

create a 5-year summarized income statement for each of the following assumptions:

I. The old oven is kept.

Sales
Less costs:
Variable operating costs
Fixed operating costs
Selling and administrative
Depreciation				enter a subtotal of the four previous amounts
Net income				$enter a total amount

ii. The old oven is replaced.

Sales
Less costs:
Variable operating costs
Fixed operating costs
Selling and administrative
Depreciation			enter a subtotal of the four previous amounts
Operating income			enter a total amount for the first part
Less: Loss on old elevator
Net income			$enter a total amount

Using incremental analysis, determine whether the old oven should be replaced and If an amount reduces the net income then enter with a negative sign preceding the number.

	Retain Old oven		Replace Old oven		Net Income Increase (Decrease)
Variable operating costs
Fixed operating costs
New oven cost
Salvage on the old oven
Totals

SHOULD THE OLD OVEN BE REPLACED? YES OR NO? _________