Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The TechHelp Company produces and sells 6,400 modular computer desks per year at a selling price of $650 each. Its current production equipment, purchased for

The TechHelp Company produces and sells 6,400 modular computer desks per year at a selling price of $650 each. Its current production equipment, purchased for $1,200,000 and with a 5-year useful life, is only 2 years old. It has a terminal disposal value of $0 and is depreciated on a straight-line basis. The equipment has a current disposal price of $450,000. However, the emergence of a new molding technology has led TechHelp to consider either upgrading or replacing the production equipment. The following table presents data for the two alternatives:

A

B

C

1

Upgrade

Replace

2

One-time equipment costs

$2,900,000

$4,200,000

3

Variable manufacturing cost per desk

$155

$85

4

Remaining useful life of equipment (in years)

3

3

5

Terminal disposal value of equipment

$0

$0

All equipment costs will continue to be depreciated on a straight-line basis. For simplicity, ignore income taxes and the time value of money

Requirement 4. Assume that all data are as given in the original exercise. Dan Doria is TechHelp's manager, and his bonus is based on operating income. Because he is likely to relocate after about a year, his current bonus is his primary concern. Which alternative would Doria choose? Explain.

Begin by calculating the operating income under each alternative. (If an input field is not used in the table, leave the input field empty; do not enter a zero. Round all amounts to the nearest whole number.)

Over 1 Year

Upgrade

Replace

Revenues

Cash operating costs

Depreciation

Loss on disposal of old equipment

Total costs

Operating income

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Information Systems Controls And Processes

Authors: Leslie Turner, Andrea B. Weickgenannt, Mary Kay Copeland

5th Edition

1119989485, 9781119989486

More Books

Students also viewed these Accounting questions

Question

=+What would you say if the person were in front of you?

Answered: 1 week ago

Question

=+ How could you make it more engaging and entertaining?

Answered: 1 week ago