Waukee Railroad is considering the purchase of a powerful, high-speed wheel grinder to replace a standard wheel grinder now in use. Selected information on the two machines follows:

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Standard

Wheel GrinderHigh-Speed

Wheel GrinderOriginal cost new$45,000$62,500Accumulated depreciation to date$18,000$0Current salvage value$21,750$0Estimated cost per year to operate$26,250$12,250Remaining years of useful life5 years5 years

need:

need a computation covering the five-year period that will show the net advantage or disadvantage of purchasing the high-speed wheel grinder. Use only relevant costs in your analysis.

BRIEF EXERCISE 9-3

Dropping or Retaining a Segment[LO1-CC3]

Bed & Bath, a retailing company, has two departments: hardware and linens. A recent monthly income statement for the company follows:

DepartmentHardwareLinensTotalSales$3,000,000$1,000,000$4,000,000Less: Variable expenses900,000400,0001,300,000Contribution margin2,100,000600,0002,700,000Less: Fixed expenses1,400,000800,0002,200,000Net operating income (loss)$700,000$(200,000)$500,000

A study indicates that $340,000 of the fixed expenses being charged to linens are sunk costs or allocated costs that will continue even if the linens department is dropped. In addition, the elimination of the linens department will result in a 10% decrease in the sales of the hardware department.

need:

If the linens department is dropped, what will be the effect on the net operating income of the company as a whole?