Differential Analysis for Machine Replacement Proposal
Flint Tooling Company is considering replacing a machine thathas been used in its factory for two years. Relevant dataassociated with the operations of the old machine and the newmachine, neither of which has any estimated residual value, are asfollows:
Old Machine Cost of machine, eight-year life $38,000 Annual depreciation (straight-line) 4,750 Annual manufacturing costs, excluding depreciation 12,400 Annual nonmanufacturing operating expenses 2,700 Annual revenue 32,400 Current estimated selling price of the machine 12,900 New Machine Cost of machine, six-year life $57,000 Annual depreciation (straight-line) 9,500 Estimated annual manufacturing costs, exclusive ofdepreciation 3,400
Annual nonmanufacturing operating expenses and revenue are notexpected to be affected by purchase of the new machine.
Required:
1. Prepare a differential analysis as ofNovember 8 comparing operations using the present machine(Alternative 1) with operations using the new machine (Alternative2). The analysis should indicate the differential income that wouldresult over the six-year period if the new machine is acquired. Ifan amount is zero, enter zero "0". Use a minus sign to indicate aloss.
DifferentialAnalysis Continue withOld Machine (Alt. 1) or Replace Old Machine (Alt. 2) November8 Continue with Old Machine (Alternative1) Replace Old Machine (Alternative 2) Differential Effect on Income (Alternative2) Revenues: Proceeds from sale of old machine $ $ $ Costs: Purchase price Annual manufacturing costs (6 yrs.) Income (Loss) $ $ $
Differential Analysis for Machine Replacement Proposal
Flint Tooling Company is considering replacing a machine thathas been used in its factory for two years. Relevant dataassociated with the operations of the old machine and the newmachine, neither of which has any estimated residual value, are asfollows:
| Old Machine | |
| Cost of machine, eight-year life | $38,000 |
| Annual depreciation (straight-line) | 4,750 |
| Annual manufacturing costs, excluding depreciation | 12,400 |
| Annual nonmanufacturing operating expenses | 2,700 |
| Annual revenue | 32,400 |
| Current estimated selling price of the machine | 12,900 |
| New Machine | |
| Cost of machine, six-year life | $57,000 |
| Annual depreciation (straight-line) | 9,500 |
| Estimated annual manufacturing costs, exclusive ofdepreciation | 3,400 |
Annual nonmanufacturing operating expenses and revenue are notexpected to be affected by purchase of the new machine.
Required:
1. Prepare a differential analysis as ofNovember 8 comparing operations using the present machine(Alternative 1) with operations using the new machine (Alternative2). The analysis should indicate the differential income that wouldresult over the six-year period if the new machine is acquired. Ifan amount is zero, enter zero "0". Use a minus sign to indicate aloss.
| DifferentialAnalysis | |||
| Continue withOld Machine (Alt. 1) or Replace Old Machine (Alt. 2) | |||
| November8 | |||
| Continue with Old Machine (Alternative1) | Replace Old Machine (Alternative 2) | Differential Effect on Income (Alternative2) | |
| Revenues: | |||
| Proceeds from sale of old machine | $ | $ | $ |
| Costs: | |||
| Purchase price | |||
| Annual manufacturing costs (6 yrs.) | |||
| Income (Loss) | $ | $ | $ |
Related questions
Lexigraphic Printing Company is considering replacing a machinethat has been used in its factory for four years. Relevant dataassociated with the operations of the old machine and the newmachine, neither of which has any estimated residual value, are asfollows:
Old Machine | |
|---|---|
| Cost of machine, 10-year life | $88,825 |
| Annual depreciation (straight-line) | 8,700 |
| Annual manufacturing costs, excluding depreciation | 23,710 |
| Annual non-manufacturing operating expenses | 5,955 |
| Annual revenue | 74,035 |
| Current estimated selling price of machine | 29,835 |
New Machine | |
|---|---|
| Purchase price of machine, six-year life | $119,840 |
| Annual depreciation (straight-line) | 20,095 |
| Estimated annual manufacturing costs, excludingdepreciation | 6,920 |
Annual non-manufacturing operating expenses and revenue are notexpected to be affected by purchase of the new machine.
| Required: | |
| 1. | Prepare a differential analysis as of April 30 comparingoperations using the present machine (Alternative 1) withoperations using the new machine (Alternative 2). The analysisshould indicate the total differential income that would resultover the six-year period if the new machine is acquired. Refer tothe lists of Labels and Amount Descriptions for the exact wordingof the answer choices for text entries. For those boxes in whichyou must enter subtracted or negative numbers use a minus sign. Ifthere is no amount or an amount is zero, enter "0". A colon (:)will automatically appear if required. |
| 2. | List other factors that should be considered before a finaldecision is reached. |
Lexigraphic Printing Company is considering replacing a machine that has been used in its factory for four years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows:
| Old Machine | |
|---|---|
| Cost of machine, 10-year life | $89,000 |
| Annual depreciation (straight-line) | 8,900 |
| Annual manufacturing costs, excluding depreciation | 23,600 |
| Annual non-manufacturing operating expenses | 6,100 |
| Annual revenue | 74,200 |
| Current estimated selling price of machine | 29,700 |
| New Machine | |
|---|---|
| Purchase price of machine, six-year life | $119,700 |
| Annual depreciation (straight-line) | 19,950 |
| Estimated annual manufacturing costs, excluding depreciation | 6,900 |
Annual non-manufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.
| Required: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1. | Prepare a differential analysis as of April 30 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the total differential income The difference between the differential revenue and the differential costs. that would result over the six-year period if the new machine is acquired. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2. | List other factors that should be considered before a final decision is reached. 1. Prepare a differential analysis as of April 30 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the total differential income The difference between the differential revenue and the differential costs. that would result over the six-year period if the new machine is acquired. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required. Question not attempted.
Solution
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