Required: GH Company is trying to decide whether to replace a current piece

Required: Identify each of the following as either a direct or indirect cost.
February 11, 2020
Im trying to understand contribution margins.In regards to contribution margins
February 11, 2020

Required: GH Company is trying to decide whether to replace a current piece of machinery with a

new machine. Using the below data, determine the relevant costs of the old machine and the new machine. Should GH Company purchase the new machine?

                                                         Old Machine         New machine

Original cost                                           100,000

Accumulated depreciation                       (50,000)

                                                                ——————–

Book value                                               50,000

Market value (now)                                   25,000               30,000

Salvage value (in 5 years)                          5,000                 8,000

Annual depreciation expense                    11,000

Operating expenses

     Per year                                                  9,000                 4,500

     Times number of years                                  4                          4

Total operating expenses                           36,000               18,000

 
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