In evaluating the “relevant” costs, what does your analysis show?

This case focuses on the following student learning objectives as it relates to the course objectives (CO) described under the Getting Started – About This Course page:
apply critical thinking skills to consider and evaluate a written case to effectively formulate meaningful, relevant written communications to accounting special decision making. (CO1, CO4)
exhibit problem-solving skills, evaluate alternative courses of action, and choose a selected course of action for special decisions. (CO1, CO2)
evaluate relevant information necessary to make special decisions. (CO1, CO2)
General Instructions:
For this case, you will be responsible for preparing a memo in a Word document to address the situation. Memo formats are available in Word under File, New, Search on Professional Memos or Memos for options. You can select a format or create your own memo in Word. If you create your own, be sure to follow general memo format rules such as Memo Instruction Link (Links to an external site.) (Links to an external site.)Furthermore, the link contains helpful information in the format of the body of a memo ie. single spacing, flush to the left margin no indent, etc.
Detailed Instructions:
In a business setting, we are often asked to write a memo to communicate with internal and external professionals. To further advance your learning of memo communication, this written case requests that you prepare a memo to communicate within the company.
Background:
As the senior accountant at Active Quality Sportswear (AQS), which manufactures sport attire for men, women, youth, and children, you are often asked to prepare various financial analysis necessary for decision making. Jacob Jones, the controller, asked you to evaluate whether a piece of factory equipment should be replaced or kept.
The old piece of factory equipment was purchased four years ago for $850,000. Over the last four years, AQS has allocated depreciation based on the straight-line method. The expected salvage value is $25,000. The current book value of the factory equipment is $520,000. The operating expenses total approximately $40,000 a year. It is estimated that the residual value (market value) of the old machine is $300,000.
The controller is contemplating whether to replace the piece of factory equipment. The replacement factory equipment would consist of a purchase price of $400,000, a useful life of eight years, salvage value of 20,000, and annual operating costs of $25,000.
In consideration of the background, prepare a memo in a Word document to submit to the controller. Your first paragraph would be an introduction paragraph of what the memo is about. Next, you will want to consider the equipment replacement decision. To add clarity to your discussion, you can insert a table comparing the old equipment to the new equipment. In evaluating the “relevant” costs, what does your analysis show? Do you recommend that the equipment be replaced or kept ongoing for the next eight years? Why or why not?

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