Crisoc is considering whether to repair or replace its manufacturing equipment. It is now in need of repairs that will cost $28,000. It has three years left of its useful life. Crisoc must determine whether to go ahead with the repairs, or to purchase a new machine to replace the old one. A new, more efficient machine costs $210,000 and will have an 3-year useful life, after which it will have no salvage value. The new machine would reduce variable manufacturing costs from $173,000 to $124,000 annually. As well, the old machinery can be sold for $65,000.

Do not enter dollar signs or commas in the input boxes.
Use the negative sign for values that must be subtracted.
Indicate repair or replace using the drop-down list.

a) Prepare a differential analysis based on the remaining useful life (3 years) of the old machinery without consideration of the time value of money or depreciation expense on the asset.

 

Repair Equipment Replace Equipment Variable MOH $ $ Repairs costs $ $ New Machine cost $ Sale of Old Machine $ $ Total Costs $ $ b) Should Crisoc repair or replace its manufacturing equipment? $ 69 Difference 47