The TechMech Company produces and sells 5,500 modular computer desks per year at a selling price of $600 each. Its current production equipment, purchased for $1,650,000

The TechMech Company produces and sells 5,500 modular computer desks per year at a selling price of $600 each. Its current production equipment, purchased for $1,650,000 and with a five-year useful
life, is only two years old. It has a terminal disposal value of $0 and is depreciated on a straight-line basis. The equipment has a current disposal price of $450,000. However, the emergence of a new
molding technology has led TechMech to consider either upgrading or replacing the production equipment. The following table presents data for the two alternatives: a (Click to view the data for the two alternatives.) All equipment costs will continue to be depreciated on a straight-line basis. For simplicity, ignore income taxes and the time value of money.
Read the muirements. Requirement 1. Should TechMech upgrade its production line or replace it? Show your calculations. Determine the total relevant costs over 3 years. (If a box is not used in the table, leave the box empty; do not enter a zero. Use parentheses or a minus sign for numbers to be subtracted.) Over 3 years 0 Data Table
Upgrade Replace Difference
Cash operating costs |
Current disposal price | —450000 450000 U d R I
pgra e ep ace
– ‘ ‘ 2600000 4300000 _ one “me cap’ta’ °°Sts I — 1700000 One-time equipment costs $ 2,600,000 $ 4,300,000
Total relevant costs I Variable manufacturing cost per desk $ 170 $ 75 Remaining useful life of equipment (years) 3 3 Terminal disposal value of equipment $ 0 $ 0

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