Murl Plastics Inc. purchased a new machine one year ago at a cost of $60,000. Although the machine o

Murl Plastics Inc. purchased a new machine one year ago at a cost of $60,000. Although the machine o

Murl Plastics Inc. purchased a new machine one year ago at a cost of $60,000. Although the machine operates well, the president of Murl Plastics is wondering if the company should replace it with a new electronic machine that has just come on the market. The new machine would slash annual operating costs by two-thirds, as shown in the comparative data below: Purchase cost new Estimated useful life new Annual operating costs Annual straight-line depreciation Remaining book value Salvage value now Salvage value in five years Present Machine $60,000 6 years $42.000 10,000 50,000 10.000 Proposed New Machine $90,000 5 years $14,000 18,000 In trying to decide whether to purchase the new machine, the president has prepared the following analysis: Book value of the old machine Less: Salvage value $50,000 10,000 Net loss from disposal $40,000 “Even though the new machine looks good,” said the president, “we can't get rid of that old machine if it means taking a huge loss on it. We'll have to use the old machine for at least a few more years.” Sales are expected to be $210.000 per year, and selling and administrative expenses are expected to be $126,000 per year, regardless of which machine is used. Required: 1. Prepare a summary income statement covering the next five years, assuming the following: a. The new machine is not purchased. b. The new machine is purchased. (Leave no cells blank – be certain to enter “0” wherever required.) 5 Years Summary Keep Old Machine Buy New Machine Difference Total expenses 2. Compute the net advantage of purchasing the new product using relevant costs. of purchasing the new machine

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