Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $57,300, the accumulated depreciation is $22,900, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $119,200. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations:
Present Operations Proposed Operations Sales $181,600 $181,600 Direct materials $61,900 $61,900 Direct labor 43,000 â Power and maintenance 4,000 21,200 Taxes, insurance, etc. 1,400 4,800 Selling and administrative expenses 43,000 43,000 Total expenses $153,300 $130,900
a. Prepare a differential analysis dated May 4, to determine whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). Prepare the analysis over the useful life of the new machine. If an amount is zero, enter "0".
Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) May 4 Continue with Old Machine
(Alternative 1) Replace Old Machine
(Alternative 2) Differential Effect on Income
(Alternative 2) Sales (5 years) $ $ $ Costs: Purchase price Direct materials (5 years) Direct labor (5 years) Power and maintenance (5 years) Taxes, insurance, etc. (5 years) Selling and admin. expenses (5 years) Income (Loss) $ $ $
b. Based only on the data presented, should the proposal be accepted? ( Should or shouldnt be accepted)
c. Differences in capacity between the two alternatives is _____ to consider before a final decision is made. ( Relevant or irrelevant )
Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $57,300, the accumulated depreciation is $22,900, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $119,200. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations:
| Present Operations | Proposed Operations | |||
| Sales | $181,600 | $181,600 | ||
| Direct materials | $61,900 | $61,900 | ||
| Direct labor | 43,000 | â | ||
| Power and maintenance | 4,000 | 21,200 | ||
| Taxes, insurance, etc. | 1,400 | 4,800 | ||
| Selling and administrative expenses | 43,000 | 43,000 | ||
| Total expenses | $153,300 | $130,900 |
a. Prepare a differential analysis dated May 4, to determine whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). Prepare the analysis over the useful life of the new machine. If an amount is zero, enter "0".
| Differential Analysis | |||
| Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) | |||
| May 4 | |||
| Continue with Old Machine (Alternative 1) | Replace Old Machine (Alternative 2) | Differential Effect on Income (Alternative 2) | |
| Sales (5 years) | $ | $ | $ |
| Costs: | |||
| Purchase price | |||
| Direct materials (5 years) | |||
| Direct labor (5 years) | |||
| Power and maintenance (5 years) | |||
| Taxes, insurance, etc. (5 years) | |||
| Selling and admin. expenses (5 years) | |||
| Income (Loss) | $ | $ | $ |
b. Based only on the data presented, should the proposal be accepted? ( Should or shouldnt be accepted)
c. Differences in capacity between the two alternatives is _____ to consider before a final decision is made. ( Relevant or irrelevant )
Related questions
Differential Analysis Report for Machine Replacement
Lone Wolf Technologies Inc. assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $60,400, the accumulated depreciation is $24,200, its remaining useful life is five years, and its residual value is zero. A proposal was made to replace the present manufacturing procedure with a fully automatic machine that will cost $113,800. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on current and proposed operations:
| Current Operations | Proposed Operations |
| Sales | $191,500 | $191,500 | ||
| Direct materials | $65,200 | $65,200 | ||
| Direct labor | 45,300 | 15,100 | ||
| Power and maintenance | 4,200 | 7,200 | ||
| Taxes, insurance, etc. | 1,500 | 5,000 | ||
| Selling and administrative expenses | 45,300 | 45,300 | ||
| Total expenses | $161,500 | $137,800 |
| a. Prepare a differential analysis report for the proposal to replace the machine. Include in the analysis both the net differential change in costs anticipated over the five years and the net annual differential change in costs anticipated.
| | |||||||||
| Annual costs and expensesâpresent machine | $ |
| Annual costs and expensesânew machine Annual differential decrease in costs and expenses Number of years applicable Total differential decrease in costs and expenses Cost of new machine Net differential decrease in costs and expenses, five-year total Annual net differential decrease in costs and expensesânew machine |
