Question

PLEASE SHOW MATH CALCULATION(formulas)it has to be done on excel P12-4 Last year (2016), 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 effi ciency. 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 ElevatorPurchase price $120,000 $160,000Estimated salvage value 0 0Estimated useful life 5 years 4 yearsDepreciation method Straight-line Straight-lineAnnual operating costs other than depreciation: Variable $ 35,000 $ 10,000 Fixed 23,000 8,500. Annual revenues are $240,000, 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 2017, Richter Condos will be able to sell it for $25,000.Instructions(a) Determine any gain or loss if the old elevator is replaced.(b) Prepare a 4-year summarized income statement for each of the following assumptions: (1) The old elevator is retained. (2) The old elevator is replaced.(c) Using incremental analysis, determine if the old elevator should be replaced.(d) Write a memo to Ron Richter explaining why any gain or loss should be ignored in the decision to replace the old elevator.

Cost

Accumulated depreciation

Sales proceeds

AND for bcd this table

Retain Old

Elevator

(b) (1)

Revenues

Less costs:

Net income

(b) (2)

Revenues

Less costs:

Operating income

Less: Loss on old elevator

Net income

(c)

Variable operating costs

Fixed operating costs

New elevator cost

Salvage on old elevator

d

Answer 1

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AS FOR GIVEN DATA..

Determine any gain or loss if the old elevator is replaced.

Prepare a 4-year summarized income statement for each of the following assumptions: (1) The old elevator is retained. (2) The old elevator is replaced

Using incremental analysis, determine if the old elevator should be replaced.

Write a memo to Ron Richter explaining why any gain or loss should be ignored in the decision to replace the old elevator.

d. Any gain or loss on sale of the old elevator should be ignored in the decision to replace the old elevator, because, the book value of the old elevator, being a sunk cost, is not relevant to decision making.

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