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The Furnitech Company produces and sells 7,500 modular computer desks per year at a selling price of $375 each. Its current production equipment, purchased for
The Furnitech Company produces and sells 7,500 modular computer desks per year at a selling price of $375 each. Its current production equipment, purchased for $900,000 and with a 5-year useful life, is only 2 years old. The equipment has a terminal disposal value of $0 and is depreciated on a straight-line basis. The equipment has a current disposal price of $225,000. However, the emergence of a new molding technology has led Furnitech to consider either upgrading or replacing the production equipment. The following table presents data for the two alternatives: (Click to view the data for the two alternatives.) All equipment costs will continue to be depreciated on a straight-line basis. For simplicity, ignore income taxes and the time value of money. Read the requirements. Requirement 1. Should Furnitech upgrade its production line or replace it? Show your calculations. i X Data Table Determine the total relevant costs over 3 years. (Leave cells blank if account balance is zero. Use parenthes Over 3 years Upgrade Replace Difference Upgrade Replace $ 1,500,000 $ 2,400,000 Cash operating costs Current disposal price (225,000) 75.00/$ 37.50 (225,000) 2,400,000 One-time equipment costs Variable manufacturing costs per desk Remaining useful life of equipment (years) Terminal disposal value of equipment 1,500,000 3 One-time capital costs 3 (900,000) 0$ 0 Total relevant costs Print Done
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