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Johnson Machine

Price: $1.99


Johnson Enterprises uses a computer to handle its sales invoices. Lately, business
has been so good that it takes an extra 3 hours per night, plus every third Saturday, to keep
up with the volume of sales invoices. Management is considering updating its computer
with a faster model that would eliminate all of the overtime processing.


  Current machine New Machine
Original purchase cost   15,000  25,000
Accumulated depreciation   6,000  -  
Estimated annual operating costs   25,000  20,000
Useful life   5 years   5 years 

If sold now, the current machine would have a salvage value of $6,000. If operated for the
remainder of its useful life, the current machine would have zero salvage value. The new
machine is expected to have zero salvage value after 5 years.

Instructions
Should the current machine be replaced?
Make incremental analysis concerning elimination of division.

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