Bryant Company has a factory machine with a book value of $93,700 and a remaining useful life of 7 years. It can be sold for $34,700. A new machine is available at a cost of $378,500. This machine will have a 7-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $605,900 to $457,900. Prepare an analysis showing whether the old machine should be retained or replaced

                                               Retain      Replace     Net income

                                                                                           Increase/Decrease

Variable manufacturing costs    4241300    3205300    1036000

New machine cost                            0           378500     -378500

Sell old machine                                0          -34700         34700

Total                                              4241300   3549100    692,200

Conclusion: The old factory machine should be replaced as its net income is lesser

Workings

Variable manufacturing costs

a. Retain Equipment = 605900*7 =  4241300  

b. Replace Equipment =457900*7 = 3205300

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