Rocko Inc Has a Machine with a Book Value of $50,000

question 74

Multiple Choice

Rocko Inc. has a machine with a book value of $50,000 and a five year remaining life. A new machine is available at a cost of $85,000 and Rocko can also receive $38,000 for trading in the old machine. The new machine will reduce variable manufacturing costs by $14,000 per year over its five year life. Should the machine be replaced?

• A) Yes, because income will increase by $14,000 per year.
• B) Yes, because income will increase by $23,000.
• C) No, because the company will be $23,000 worse off.
• D) No, because the income will decrease by $14,000 per year.
• E) Rocko will be not be better or worse off by replacing the machine.

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Definitions:

Accounts Payable

Liabilities of a company or individual that are due to creditors within a short period of time, typically for purchases of goods or services.

Cash

Represents money in coins, currency, or bank balances that is readily available for use.

Supplies Expense

The cost associated with consumable items used during the business operations and not directly tied to the production of goods or services.

Fees Earned

Income earned from providing services or performing work, recognized in the accounting period when the services are rendered.