At the beginning of last year (2019), Richter Condos installed a mechanized elevator for its tenants. The owner of the company, Ron Richter, recently returned from an industry equipment exhibition where he watched a computerized elevator demonstrated. He was impressed with the elevator’s speed, comfort of ride, and cost efficiency. Upon returning from the exhibition, he asked his purchasing agent to collect price and operating cost data on the new elevator. In addition, he asked the company’s accountant to provide him with cost data on the company’s elevator. This information is presented below.     Old Elevator   New Elevator   Purchase price   $96,000     $160,000     Estimated salvage value   0     0     Estimated useful life   5 years     4 years     Depreciation method   Straight-line     Straight-line     Annual operating costs                 other than depreciation:                  Variable   $34,800     $10,000        Fixed   22,800     8,800     Annual revenues are $241,000, and selling and administrative expenses are $29,000, regardless of which elevator is used. If the old elevator is replaced now, at the beginning of 2020, Richter Condos will be able to sell it for $25,600. Using incremental analysis, determine if the old elevator should be replaced. (In the first two columns, enter costs and expenses as positive amounts, and any amounts received as negative amounts. In the third column, enter net income increases as positive amounts and decreases as negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -15 or parentheses e.g. (15).)     Retain Old Elevator   Replace Old Elevator   Net Income Increase (Decrease)   Variable operating costs   $     $     $     Fixed operating costs               New elevator cost               Salvage on old elevator                  Totals   $     $     $

At the beginning of last year (2019), Richter Condos installed a mechanized elevator for its tenants. The owner of the company, Ron Richter, recently returned from an industry equipment exhibition where he watched a computerized elevator demonstrated. He was impressed with the elevator’s speed, comfort of ride, and cost efficiency. Upon returning from the exhibition, he asked his purchasing agent to collect price and operating cost data on the new elevator. In addition, he asked the company’s accountant to provide him with cost data on the company’s elevator. This information is presented below.

    Old Elevator   New Elevator  
Purchase price   $96,000     $160,000    
Estimated salvage value   0     0    
Estimated useful life   5 years     4 years    
Depreciation method   Straight-line     Straight-line    
Annual operating costs              
  other than depreciation:              
   Variable   $34,800     $10,000    
   Fixed   22,800     8,800    

Annual revenues are $241,000, and selling and administrative expenses are $29,000, regardless of which elevator is used. If the old elevator is replaced now, at the beginning of 2020, Richter Condos will be able to sell it for $25,600.

Using incremental analysis, determine if the old elevator should be replaced. (In the first two columns, enter costs and expenses as positive amounts, and any amounts received as negative amounts. In the third column, enter net income increases as positive amounts and decreases as negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -15 or parentheses e.g. (15).)

    Retain
Old Elevator
  Replace
Old Elevator
  Net Income
Increase
(Decrease)
 
Variable operating costs   $

 
  $

 
  $

 
 
Fixed operating costs  
 
 
 
 
 
 
New elevator cost  
 
 
 
 
 
 
Salvage on old elevator  
 
 
 
 
 
 
   Totals   $

 
  $

 
  $

 
 

The old elevator 

 shouldshould not

 be replaced.

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