Smith Industries Is Considering Replacing a Machine That Is Presently

question 15

Multiple Choice

Smith Industries is considering replacing a machine that is presently used in its production process.The following information is available:
$$\begin{array} { | l | r | r | } \hline& { \text { Old machine } } & { \begin{array} { c } \text { Replacement } \\\text { machine } \end{array} } \\\hline \text { Original cost } & \$ 45000 & \$ 35000 \\\hline \text { Remaining useful life in years } & 5 & 5 \\\hline \text { Current age in years } & 5 & 0\\\hline \text { Book value } & \$ 25000 & \\\hline \text { Current disposal value in cash } & \$ 8000 & \\\hline \text { Future disposal value in cash (in 5 years) } & \$ 0 & \$ 0\\ \hline \text { Annual cash operating costs } & \$ 7000 &\$ 4000 \\\hline\end{array}$$
Which of the information provided in the table is irrelevant to the replacement decision?

• A) Annual operating costs
• B) The current disposal value of the old machine
• C) The price of the new machine
• D) The original cost of the old machine

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Definitions:

Performance Evaluation

The process or system by which the performance of an individual, team, or organization is assessed, often involving the comparison of actual output or results against desired goals or standards.

Production Efficiency

The level of output that a production process achieves relative to its input resources, with higher efficiency indicating less waste and more value creation.

FIFO Method

First-In, First-Out, an inventory valuation method where the costs of the oldest inventory items are recorded as sold first.

Conversion Activity

Processes that transform raw materials into finished products, including manufacturing, assembling, and packaging operations.