Sloan Corporation is considering new equipment. The equipmentcan be purchased from an overseas supplier for $3,180. The freightand installation costs for the equipment are $640. If purchased,annual repairs and maintenance are estimated to be $430 per yearover the four-year useful life of the equipment. Alternatively,Sloan can lease the equipment from a domestic supplier for $1,420per year for four years, with no additional costs.
Prepare a differential analysis dated December 3, to determinewhether Sloan should lease (Alternative 1) or purchase (Alternative2) the machine. (Hint: This is a "lease or buy"decision, which must be analyzed from the perspective of themachine user, as opposed to the machine owner.) If an amount iszero, enter zero "0". Use a minus sign to indicate a loss.
Differential Analysis LeaseEquipment (Alt. 1) or Buy Equipment (Alt. 2) December 3 Lease Equipment (Alternative 1) Buy Equipment (Alternative 2) Differential Effect on Income (Alternative2) Revenues $ $ $ Costs: Purchase price $ $ $ Freight and installation Repair and maintenance (4 years) Lease (4 years) Income (Loss) $ $ $
Sloan Corporation is considering new equipment. The equipmentcan be purchased from an overseas supplier for $3,180. The freightand installation costs for the equipment are $640. If purchased,annual repairs and maintenance are estimated to be $430 per yearover the four-year useful life of the equipment. Alternatively,Sloan can lease the equipment from a domestic supplier for $1,420per year for four years, with no additional costs.
Prepare a differential analysis dated December 3, to determinewhether Sloan should lease (Alternative 1) or purchase (Alternative2) the machine. (Hint: This is a "lease or buy"decision, which must be analyzed from the perspective of themachine user, as opposed to the machine owner.) If an amount iszero, enter zero "0". Use a minus sign to indicate a loss.
| Differential Analysis | |||
| LeaseEquipment (Alt. 1) or Buy Equipment (Alt. 2) | |||
| December 3 | |||
| Lease Equipment (Alternative 1) | Buy Equipment (Alternative 2) | Differential Effect on Income (Alternative2) | |
| Revenues | $ | $ | $ |
| Costs: | |||
| Purchase price | $ | $ | $ |
| Freight and installation | |||
| Repair and maintenance (4 years) | |||
| Lease (4 years) | |||
| Income (Loss) | $ | $ | $ |
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Related questions
Kincaid Company owns equipment with a cost of $367,700 andaccumulated depreciation of $56,200 that can be sold for $274,600,less a 3% sales commission. Alternatively, Kincaid Company canlease the equipment for three years for a total of $285,700, at theend of which there is no residual value. In addition, the repair,insurance, and property tax expense that would be incurred byKincaid Company on the equipment would total $15,300 over the threeyear lease.
a. Prepare a differential analysis on February18, as to whether Kincaid Company should lease (Alternative 1) orsell (Alternative 2) the equipment. For those boxes in which youmust enter subtracted or negative numbers use a minus sign.
| Differential Analysis | |||
| Lease(Alt. 1) or Sell (Alt. 2) Equipment | |||
| February 18 | |||
| Lease Equipment (Alternative 1) | Sell Equipment (Alternative 2) | Differential Effect on Income (Alternative2) | |
| Revenues | $ | $ | $ |
| Costs | |||
| Income (Loss) | $ | $ | $ |
b. Should Kincaid Company lease (Alternative 1)or sell (Alternative 2) the machine?
Make-or-Buy Decision for a Service Company
The Theater Arts Guild of Dallas (TAG-D) employs five people inits Publication Department. These people lay out pages forpamphlets, brochures, magazines, and other publications for theTAG-D productions. The pages are delivered to an outside companyfor printing. The company is considering an outside publicationservice for the layout work. The outside service quoting a price of$12 per layout page. The budget for the Publication Department forthe current year is as follows:
| Salaries | $174,200 |
| Benefits | 39,600 |
| Supplies | 21,100 |
| Office expenses | 26,400 |
| Office depreciation | 23,800 |
| Computer depreciation | 15,800 |
| Total | $300,900 |
The department expects to lay out 22,000 pages for the currentyear. The Publication Department office space and equipment wouldbe used for future administrative needs, if the departmentâsfunction were purchased from the outside.
a. Prepare a differential analysis datedFebruary 22 to determine whether TAG-D should lay out pagesinternally (Alternative 1) or purchase layout services from theoutside (Alternative 2). If an amount is zero, enter "0". For thoseboxes in which you must enter subtracted or negative numbers use aminus sign.
| Differential Analysis | |||
| Layout Pages Internally (Alt. 1) or Purchase Lay out Services (Alt.2) | |||
| February 22 | |||
| Lay out Pages Internally (Alternative1) | Purchase Lay out Services (Alternative2) | Differential Effect on Income (Alternative2) | |
| Selling Price | $0 | $0 | $0 |
| Costs: | |||
| Purchase price of lay out work | $ | $ | $ |
| Salaries | |||
| Benefits | |||
| Supplies | |||
| Office expenses | |||
| Office depreciation | |||
| Computer depreciation | |||
| Income (loss) | $ | $ | $ |
b. The benefit from using an outside service isshown to be than performing the lay out work internally. The fixedcosts (depreciation expenses) in the budget are to the decision.Thus, the work should purchased from the outside on a strictlyfinancial basis.
c. Before electing to the five employees, theguild should consider the of the decision.
Make-or-Buy Decision for a Service Company
The Theater Arts Guild of Dallas (TAG-D) employs five people in its Publication Department. These people lay out pages for pamphlets, brochures, magazines, and other publications for the TAG-D productions. The pages are delivered to an outside company for printing. The company is considering an outside publication service for the layout work. The outside service quoting a price of $12 per layout page. The budget for the Publication Department for the current year is as follows:
| Salaries | $174,200 |
| Benefits | 39,600 |
| Supplies | 21,100 |
| Office expenses | 26,400 |
| Office depreciation | 23,800 |
| Computer depreciation | 15,800 |
| Total | $300,900 |
The department expects to lay out 22,000 pages for the current year. The Publication Department office space and equipment would be used for future administrative needs, if the departmentâs function were purchased from the outside.
a. Prepare a differential analysis dated February 22 to determine whether TAG-D should lay out pages internally (Alternative 1) or purchase layout services from the outside (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.
| Differential Analysis | |||
| Lay out Pages Internally (Alt. 1) or Purchase Lay out Services (Alt. 2) | |||
| February 22 | |||
| Lay out Pages Internally (Alternative 1) | Purchase Lay out Services (Alternative 2) | Differential Effect on Income (Alternative 2) | |
| Selling Price | $0 | $0 | $0 |
| Costs: | |||
| Purchase price of lay out work | $ | $ | $ |
| Salaries | |||
| Benefits | |||
| Supplies | |||
| Office expenses | |||
| Office depreciation | |||
| Computer depreciation | |||
| Income (loss) | $ | $ | $ |
b. The benefit from using an outside service is shown to be than performing the lay out work internally. The fixed costs (depreciation expenses) in the budget are to the decision. Thus, the work should purchased from the outside on a strictly financial basis.
c. Before electing to the five employees, the guild should consider the of the decision.
