Benson Company is considering the replacement of a machine that is presently used in production.The following data are available:
$\begin{array}{lll}&\text { Old Machine }&\text { NEW Machine }\
\text { Original cost } & \$ 57,000 & \$ 35,000 \
\text { Useful life in years } & 17 & 5 \
\text { Current age in years } & 12 & 0 \
\text { Book value } & \$ 39,000 & -\
\text { Disposal value now } & \$ 8,000 & - \
\text { Disposal value in } 5 \text { years } & 0 & 0 \
\text { Annual cash operating costs } & \$ 7,000 & \$ 4,000
\end{array}$
Adding all five years together,the total relevant costs to consider if the new machine is purchased is ________.
A) $12,000
B) $27,000
C) $47,000
D) $55,000

Question

Quizplus · Accepted Answer

The total relevant costs for the new machine over five years include the purchase cost, the disposal value of the old machine that is forgone, and the difference in operating costs for five years. Purchase cost of new machine = $35,000. Disposal value of old machine forgone = $8,000. Difference in operating costs for five years = ($7,000 - $4,000) * 5 = $15,000. Total = $35,000 + $8,000 + $15,000 = $58,000.

Benson Company Is Considering the Replacement of a Machine That