Thompson industries uses a special printer in its operations. Lately sales have increased to the point that it takes extra hours of overtime at night and on weekends to keep up with customer demand. Management is considering purchasing a new faster model of printer that would eliminate overtime and decrease some of the other operating costs. The following information is available:
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Current printer
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New printer
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Original purchase cost
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$100,000
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$125,000
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Accumulated depreciation
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$30,000
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|
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Estimated annual operating costs (excluding depreciation)
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$82,000
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$64,000
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Actual or projected annual depreciation on printer
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$10,000
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$21,000
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Nonmanufacturing operating expenses
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$42,000
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$42,000
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Remaining useful life (in years)
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5
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5
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Estimated salvage value at the end of useful life
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$20,000
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$20,000
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Estimated current disposal value
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$58,000
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REQUIRED:
Part 1: Compute the gain or loss on the immediate sale of the old printer.
Part 2: Prepare an incremental analysis report comparing the options of continuing with the current printer or replacing it.
Part 3: What other factors should be considered before the final decision is reached?