A company is considering replacing an old piece of machinery, which cost $597,300 and has $347,000 of accumulated depreciation to date, with a new machine that has a purchase price of $486,300. The old machine could be sold for $64,400. The annual variable production costs associated with the old machine are estimated to be $156,000 per year for eight years. The annual variable production costs for the new machine are estimated to be $99,900 per year for eight years. a.1 Prepare a differential analysis dated September 13, to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. 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 Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) September 13 Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Differential Effect on Income (Alternative 2) Revenues: Proceeds from sale of old machine $fill in the blank a0a9d7075007fb4_1 $fill in the blank a0a9d7075007fb4_2 $fill in the blank a0a9d7075007fb4_3 Costs: Purchase price fill in the blank a0a9d7075007fb4_4 fill in the blank a0a9d7075007fb4_5 fill in the blank a0a9d7075007fb4_6 Variable productions costs (8 years) fill in the blank a0a9d7075007fb4_7 fill in the blank a0a9d7075007fb4_8 fill in the blank a0a9d7075007fb4_9 Income (Loss) $fill in the blank a0a9d7075007fb4_10 $fill in the blank a0a9d7075007fb4_11 $fill in the blank a0a9d7075007fb4_12 a.2 Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. b. What is the sunk cost in this situation? The sunk cost is the $fill in the blank 868551fb0fccfa5_1.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Machine Replacement Decision

A company is considering replacing an old piece of machinery, which cost $597,300 and has $347,000 of accumulated depreciation to date, with a new machine that has a purchase price of $486,300. The old machine could be sold for $64,400. The annual variable production costs associated with the old machine are estimated to be $156,000 per year for eight years. The annual variable production costs for the new machine are estimated to be $99,900 per year for eight years.

a.1 Prepare a differential analysis dated September 13, to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. 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
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
September 13
	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues:
Proceeds from sale of old machine	$fill in the blank a0a9d7075007fb4_1	$fill in the blank a0a9d7075007fb4_2	$fill in the blank a0a9d7075007fb4_3
Costs:
Purchase price	fill in the blank a0a9d7075007fb4_4	fill in the blank a0a9d7075007fb4_5	fill in the blank a0a9d7075007fb4_6
Variable productions costs (8 years)	fill in the blank a0a9d7075007fb4_7	fill in the blank a0a9d7075007fb4_8	fill in the blank a0a9d7075007fb4_9
Income (Loss)	$fill in the blank a0a9d7075007fb4_10	$fill in the blank a0a9d7075007fb4_11	$fill in the blank a0a9d7075007fb4_12

a.2 Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.

b. What is the sunk cost in this situation?

The sunk cost is the $fill in the blank 868551fb0fccfa5_1.

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