The TechGuide Company produces and sells 7,500 modular computer desks per year at a selling price of $750 each. Its current production equipment, purchased for $1,800,000 and with a 5-year useful life, is only 2 years old. It has a terminal disposal value of $0 and is depreciated on a straight-line basis. The equipment has a current disposal price of $450,000. However, the emergence of a new molding technology has led TechGuide to consider either upgrading or replacing the production equipment. The following table presents data for the two alternatives: LOADING... (Click to view the data for the two alternatives.) Read the requirements LOADING... . Requirement 1. Should TechGuide upgrade its production line or replace it? Show your calculations. Determine the total relevant costs over 3 years. (If an input field is not used in the table, leave the input field empty; do not enter a zero. Use parentheses or a minus sign for numbers to be subtracted.) Over 3 years Upgrade Replace Difference Cash operating costs Current disposal price One-time capital costs Total relevant costs Choose from any list or enter any number in the input fields and then click Check Answer. 9 parts remaining Clear All Check Answer Data Table A B C 1 Upgrade Replace 2 One-time equipment costs $3,000,000 $4,800,000 3 Variable manufacturing cost per desk $150 $75 4 Remaining useful life of equipment (in years) 3 3 5 Terminal disposal value of equipment $0 $0 All equipment costs will continue to be depreciated on a straight-line basis. For simplicity, ignore income taxes and the time value of money.

Purchasing and Supply Chain Management

6th Edition

ISBN:9781285869681

Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Publisher:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

ChapterC: Cases

Section: Chapter Questions

Problem 5.1SC: Scenario 3 Ben Gibson, the purchasing manager at Coastal Products, was reviewing purchasing...

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Question

The

TechGuide

Company produces and sells

7,500

modular computer desks per year at a selling price of

$750

each. Its current production equipment, purchased for

$1,800,000

and with a 5-year useful life, is only 2 years old. It has a terminal disposal value of $0 and is depreciated on a straight-line basis. The equipment has a current disposal price of

$450,000.

However, the emergence of a new molding technology has led

TechGuide

to consider either upgrading or replacing the production equipment. The following table presents data for the two alternatives:

(Click

to view the data for the two alternatives.)

Read the

requirements

Requirement 1. Should

TechGuide

upgrade its production line or replace it? Show your calculations.

Determine the total relevant costs over 3 years. (If an input field is not used in the table, leave the input field empty; do not enter a zero. Use parentheses or a minus sign for numbers to be subtracted.)

Over 3 years

Upgrade

Replace

Difference

Cash operating costs

Current disposal price

One-time capital costs

Total relevant costs

Choose from any list or enter any number in the input fields and then click Check Answer.

parts remaining

Clear All

Check Answer

Data Table

	A	B	C
1		Upgrade	Replace
2	One-time equipment costs	$3,000,000	$4,800,000
3	Variable manufacturing cost per desk	$150	$75
4	Remaining useful life of equipment (in years)	3	3
5	Terminal disposal value of equipment	$0	$0

All equipment costs will continue to be depreciated on a straight-line basis. For simplicity, ignore income taxes and the time value of money.

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