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Kimmel, Accounting, 6e Hele I S Question 1 Aurora Company is considering the purchase of a new machine. The invoice price of the machine is s120,000, freight charges are estimated to be $3,000, and installation costs are expected to be s5,000. Salvage value of the new equipment is expected to be zero alter a usetul life of 5 years, Eisting equigment could be retained and used ter an additional 5 years it the new machine is not purchased. At that time, the salvage value of the equipment would be zero. I the new machine is purchased now, the existing machine would have to be scrapped Aurora's accountant, Lisah Huang, has accumulated the following data regarding annua sales and expenses with and without the new machine 1 without the new machine, Aurora can sell 10 000 units or product annually at a per unit selling price of $100. It the new machine is purchased the number of units produced and sold would increase by 10%, and the seling price would remain the same. 2. The new machine is taste than the old machine, and it is more efficient in its usage of materials. With the old machine the gross profit rate will be 25% of sales, hereas the ate will be 0% of sales with the new machine. 3. Annual selling expenses are 155 000 with he current euulpment Because he new equipmen wuuld produce d ureater number u units w Le suld, annual sellir expenses are expected Increase by 10% it s purchased. 4. Annual administrative expenses are expected to b $85,000 with the uld machine, and $97,000 with the new machine. The current book value of the existing machine is $31,000. Aurora uses straight line depreciation. h hu dass divi ed in o uroups prepare an inaremer arialysis fr he years unure incurie lax effects -' Erter ne d n e dmoun s usil either d ile dtive sun ? receding the number e g 45 ur dren eses e 45 Net Income Increase Retain Old Machine Purchdse New Machine Sales Costs and expenses Cost of goods sold Sel ing expenses Administrative expenses Purchase price Total costs and expenses Should Aunora keap the existing machine or buy thene machine? Aurora should by the nww machine Question Attempts: 0 of 3 used SAVE FOR LATER

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