Answer:
Franklin Freight Company
a. Total relevant costs for:
1. Keep Old
= $28,000
2. Replace with New One
= $16,700
b. Franklin Freight Company is quickly replace the old truck with the new fuel-efficient model:
Replace the old truck
Explanation:
a) Data and Calculations:
Cost of old truck = $46,000
Book value of old truck = $22,000
Expected remaining useful life of old truck = 5 years
Fuel cost for the old truck in excess of the new truck = $5,600 per year
Total fuel inefficiency cost of old truck = $28,000 ($5,600 * 5)
Cost of new replacement truck = $31,700
Salvage value of old truck = 15,000
Relevant cost of replacement = $16,700 ($31,700 - $15,000)
b) The salvage value of the old truck can only be realized when the new truck is procured and not without. Thus, the salvage value should be attributed to the replacement truck and not to the old truck.
The correct options in the Franklin Freight Company are:
(a). Total relevant costs to Keep Old is $28,000 and Replace with New One is $16,700.
(b). Franklin Freight Company is speedily renewed the elderly truck with the new fuel-efficient model.
Cost is simply meaning an amount that has to be paid or expended to purchase or acquire something.
It is the measurement of the secondary opportunities preceded in the selection of one good over others.
(a). Computation of the total relevant cost:
(i).
Replace the old truck:
According top the given information,
Cost of old truck = $46,000
Book value of old truck = $22,000
Expected left helpful life of old truck = 5 years
Fuel cost for the old truck in surplus of the new truck = $5,600 per year
Total fuel inefficiency cost of old truck :
[tex]\text{Total Efficiency Cost of Old Truck}=\text{Fuel Cost of Old Truck}\times \text{Estimated Useful Life}\\\\\text{Total Efficiency Cost of Old Truck}=\$5,600\times5 \text{years}\\\\\text{Total Efficiency Cost of Old Truck}=\$28,000[/tex]
(ii).
Computation of Relevant cost of replacement Truck:
According to the given information,
Cost of new replacement truck = $31,700
Salvage(S) value of old truck =$15,000
[tex]\text{Relevant Cost of Replacement}=\text{Cost of New Replacement Truck}-\text{S Value of the Old Truck}\\\\\text{Relevant Cost of Replacement}=\$31,700-\$15,000\\\\\text{Relevant Cost of Replacement}=\$16,700[/tex]
(b) After the new truck is acquired, the salvage value of the old truck can only be recognised.
Therefore, the salvage value should be assigned to the substitution truck and not to the elderly truck.
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