AB-Care paid $52,830 for an x-ray machine 4 years ago. The equipment was expected to have a useful life of 14 years from the date of acquisition with no residual value. Annual operating costs, without depreciation, are $31,698.

An improved x-ray device incorporating the new technology is available at a purchase cost of $62,830. In terms of revenue, both teams would generate the same total revenue. However, this new equipment will reduce annual operating costs, without depreciation, to $21,132. The useful life of the new equipment was estimated at 10 years with no residual value. It is estimated that the old equipment will have to be confiscated because it would be difficult to find a buyer for it.

AB-Care's accountant performed the following differential analysis related to the replacement of the X-ray machine. After reviewing this analysis, the company manager performed his own differential analysis and determined to accept the proposal to acquire the new equipment based on that it would generate savings.

Savings in operational expenses	105660
Less: loss due to undepreciated cost of obsolete equipment	37736
Less: Cost of acquiring new equipment	62830
Loss if equipment is replaced	5094

REQUIRED : Indicate how much is the correct savings from replacement if the relevant costs of this situation are analyzed. 

Answer rating: 100% (QA)

To calculate the correct savings from the replacement of the Xray machine we need to consider both t... View the full answer