Ask Question
26 January, 20:22

Crane Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes and commercial properties. Last year, Crane Roofing spent $73,200 refurbishing the lift. It has just determined that another $39,000 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $166,500. The company estimates that both lifts would have useful lives of 6 years. The new lift is more efficient and thus would reduce operating expenses by about $24,400 per year. Crane Roofing could also rent out the new lift for about $10,000 per year. The old lift is not suitable for rental. The old lift could currently be sold for $24,500 if the new lift is purchased.

Prepare an incremental analysis for the life of the machines showing whether the company should replace the equipment.

+4
Answers (1)
  1. 26 January, 22:39
    0
    The company should replace the equipment.

    Explanation:

    The cost analysis is calculated as follows;

    Retain Replace Net Income

    Equipment Equipment Increase (Decrease)

    Operating expenses $146,400 0 $146,400

    ($24,400*6)

    Repair costs $39,000 0 $39,000

    Rental revenue 0 - $60000 $60,000

    ($10,000*6)

    New machine cost 0 $166,500 - $166,500

    Sale of old machine 0 - $24,500 $24,500

    Total cost $185,400 $82,000 $103,400

    From the calculation above, the equipment should be replaced as it incur a lesser cost compare to when it is retained.
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Crane Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers