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    Doulas County Replacement Costs

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    Doulas County's Photocopying

    Equipment Replacement

    Old Equipment Proposed Replacement Equipment
    Useful life in years 5 3
    Current age in years 2 0
    Useful life remaining, in year 3 3
    Original cost $25,000 $15,000
    Accumulated amortization $10,000 0
    Book Value $15,000 Not acquired yet
    Disposal value(in cash) now $6,000 Not acquired yet
    Disposal value in two years 0 0
    Annual cash operating costs for power maintenance, toner, and supplies $14,000 $9,000

    Assume the new equipment will have a three year life. Ignore taxes.
    1. What are the relevant and irrelevant costs.
    2. Would a list of only relevant costs be more clear than the list from #1?
    3. Prepare an analysis to support your choice of alternatives.

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    Solution Preview


    Relevant costs are:

    Disposal of old equipment
    Cost of new equipment
    Operating costs for both machines for the three ...

    Solution Summary

    The relevant and not relevant costs are shown and an analysis prepared for your study.