CASE 3

AEG, an engineering firm, is considering investing in material handling equipment-a new crane and two new forklift trucks to transport large pallets of in-process materials from department to department. It is estimated that these will reduce annual operating cost by $9000/year over a 10 year planning horizon. At present the materials are transported on manually operated low lift platform trucks. The total worker-hour required per year will also be reduced from 6000 hours to 2000 hours if the forklift is purchased. The forklift will cost about $25,000 and have an economic life of 7 years with a zero-estimated salvage value. The crane will cost about $10,000 with an estimated installation cost of $7000 and an economic life of 7 years. What is the combined deprecation deduction that will be made to overhead cost in the company’s manufacturing account?