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Last year, Sheridan Condos installed a mechanized elevator for its tenants. The owner of the company, James Smith, recently returned from an industry equipment exhibition

Last year, Sheridan Condos installed a mechanized elevator for its tenants. The owner of the company, James Smith, 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

$114,000 $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

$34,000 $11,000

Fixed

22,000 8,000

Annual revenues are $239,000 and selling and administrative expenses are $28,000, regardless of which elevator is used. If it replaces the old elevator now, at the beginning of 2022, Sheridan Condos will be able to sell it for $24,000.

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

If the old elevator is replaced Sheridan Condos will incur a select an option profitloss of $enter a dollar amount .

Question Part Score

--/2

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

(1) The old elevator is kept.

Sales

$enter a dollar amount

Less costs:

Variable operating costs

$enter a dollar amount

Fixed operating costs

enter a dollar amount

Selling and administrative

enter a dollar amount

Depreciation

enter a dollar amount enter a subtotal of the four previous amounts

Net income

$enter a total amount

(2) The old elevator is replaced.

Sales

$enter a dollar amount

Less costs:

Variable operating costs

$enter a dollar amount

Fixed operating costs

enter a dollar amount

Selling and administrative

enter a dollar amount

Depreciation

enter a dollar amount enter a subtotal of the four previous amounts

Operating income

enter a total amount for the first part

Less: Loss on old elevator

enter a dollar amount

Net income

$enter a total amount

Question Part Score

--/10

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

$enter a dollar amount $enter a dollar amount $enter a dollar amount

Fixed operating costs

enter a dollar amount enter a dollar amount enter a dollar amount

New elevator cost

enter a dollar amount enter a dollar amount enter a dollar amount

Salvage on old elevator

enter a dollar amount enter a dollar amount enter a dollar amount

Totals

$enter a total amount $enter a total amount $enter a total amount

The old elevator select an option should/should not be replaced.

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