GH Company is trying to decide whether to replace a current piece of machinery_Answer

“Problem 1
Required: Identify each of the following as either a direct or indirect cost. ”
Material used in production
Salary of manufacturing supervisor
Wages of manufacturing worker
Telephone costs
Rent

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 $1,00,000.00
Accumulated depreciation -$50,000.00
Book value $50,000.00

Market value (now) $25,000.00 $30,000.00
Salvage value (in 5 years) $5,000.00 $8,000.00
Annual depreciation expense $11,000.00
Operating expenses
Per year $9,000.00 $4,500.00
Times number of years $4.00 $4.00
Total operating expenses $36,000.00 $18,000.00