Kobe Company has a factory machine with a book value of $92,500 and a remaining useful life of 4 years. It can be sold for $26,670. A new machine is available at a cost of $249,590. This machine will have a 4-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $742,720 to $627,940. Prepare an analysis showing whether the old machine should be retained or replaced. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) The old factory machine should be Solution Thus if the old machine is sold and replaced by New one , the Company is able to increase its overall gain and so the old machine should be replaced by New Machine. .

1. Kobe Company has a factory machine with a book value of $92,500 and a remaining useful life
of 4 years. It can be sold for $26,670. A new machine is available at a cost of $249,590. This
machine will have a 4-year useful life with no salvage value. The new machine will lower annual
variable manufacturing costs from $742,720 to $627,940. Prepare an analysis showing whether
the old machine should be retained or replaced. (Enter negative amounts using either a negative
sign preceding the number e.g. -45 or parentheses e.g. (45).) The old factory machine should be
Solution
Thus if the old machine is sold and replaced by New one , the Company is able to increase its
overall gain and so the old machine should be replaced by New Machine.
Retain
Equipmen t
Replace Equipment
Net Four Year
Income.Increse/decrease
Variable Manufacturing
Cost for 4 years
742720 x4
=$2970880
627940x4=$2511760 $459120
New MAchine Cost $249590 $249590
Sell old Machine $26670 $249590 249590-26670 = 222920
Total Cost $2944210 $2761350 $236200