Asked by
miguelita isabela
on Oct 15, 2024
Verified
iSooky has a spotter truck with a book value of $40,000 and a remaining useful life of five years.At the end of the five years the spotter truck will have a zero salvage value.The market value of the spotter truck is currently $32,000.iSooky can purchase a new spotter truck for $120,000 and receive $31,000 in return for trading in its old spotter truck.The new spotter truck will reduce variable manufacturing costs by $25,000 per year over the five-year life of the new spotter truck.The total increase or decrease in income by replacing the current spotter truck with the new truck (ignoring the time value of money) is:
A) $31,000 decrease
B) $31,000 increase
C) $36,000 decrease
D) $120,000 decrease
E) $36,000 increase
Book Value
The value of an asset as recorded on the balance sheet, calculated as the cost of the asset minus any depreciation or amortization.
Salvage Value
The estimated residual value of an asset at the end of its useful life, expected to be recovered upon disposal.
Variable Manufacturing Costs
Costs that vary directly with the level of production, such as raw materials and labor expenses.
- Ascertain significant costs and revenues involved in equipment substitution choices.
Verified Answer
GM
Learning Objectives
- Ascertain significant costs and revenues involved in equipment substitution choices.