Sully's Serious Security Services offers one-day alarm installs. At the beginning of 2019, the company purchased a mechanized installation machine. The owner of the company, Sully Sullivan III, recently returned from an industry equipment exhibition where she saw a computerized installation machine demonstrated.She was impressed with the machine's speed, efficiency, and quality of installations.

Upon returning from the exhibition, she asked her purchasing agent to collect price and operating cost data on the new installer. In addition, she asked the company's accountant to provide her with cost data on the company's current mechanized installer. This information is presented in the excel document.

Annual revenues are $200,000, and selling and administrative expenses are $24,000, regardless of which pressing machine is used.If Sully decides to replace the old machine now, well before it's end of useful life Sully's Serious Security Services will be able to sell it for $10,000.

Instructions

a.

Determine any gain or loss if the old pressing machine is replaced.

b.

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

1. The old machine is kept.

2. The old machine is replace.

c.

Using incremental analysis, determine whether the company should replace the old installation machine.

d.

Write a memo to Sully Sullivan III explaining why any gain or loss should be ignored in the decision to replace the old pressing machine.