Twyla Enterprises uses a computer to handle its sales invoices. Lately, business has been so

Twyla 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              $24,000                                            $18,000

Useful life                                                5 years                                              5 years

 

If sold now, the current machine would have a salvage value of $5,000. 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 five years.

 

Instructions:

 

Should the current machine be replaced?

Make incremental analysis concerning elimination of division.