Sala Cois Contemplating the Replacement of an Old Machine with a a New

question 140

Multiple Choice

Sala Co.is contemplating the replacement of an old machine with a new one.The following information has been gathered: $\begin{array}{lrr}&\text { Old Machine }&\text { New Machine }\\\text { Price } & \$ 300,000 & \$ 600,000 \\\text { Accumulated Depreciation } & 90,000 & -0- \\\text { Remaining useful life } & 10 \text { years } & -0- \\\text { Useful life } & -0- & 10 \text { years } \\\text { Annual operating costs } & \$ 240,000 & \$ 180,600\end{array}$ If the old machine is replaced, it can be sold for $24,000. The net advantage (disadvantage) of replacing the old machine is

• A)$18,000
• B)$24,000
• C)$(6,000)
• D)$(60,000)

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Definitions:

Net Operating Income

The profit realized from a business's operations after subtracting all operating expenses but before taxes and interest.

Planning Budget

A budget prepared for a specific level of activity, used as a tool for decision making and planning.

Net Operating Income

A company's income after operating expenses are subtracted but before deducting interest and taxes, reflecting the profitability from core operations.

Planning Budget

A budget created for a specific level of activity, it helps in planning and controlling costs based on projected operational activities.