Elmdale Company has a machine that affixes labels to bottles. The machine has a book value of $80,000 and a remaining useful life of 3 years and no salvage value. A new, more efficient machine is available at a cost of $300,000 that will have a 5-year useful life with no salvage value. The new machine will lower annual variable production costs from $520,000 to $410,000.

Required:
Prepare an analysis showing whether the old machine should be retained or replaced.

Answer and Explanation:

The preparation of the analysis is shown below:

Particulars  Retained equipmentReplace equipmentNet income change

Variable cost  $1,560,000                  $1,230,000                $330,000

             ($520,000 × 3 years)      ($410,000 × 3 years)

New machine cost                             $300,000                -$300,000

Net change                                                                   $30,000

So based on the analysis the old machine should be replaced

Therefore we considered all the information given in the question

gary will be given more time to file an amended complaint.