A company is considering replacing an old piece of machinery, which cost $601,100 and has $350,100 of accumulated depreciation to date, with a new machine that has a purchase price of $485,500. The old machine could be sold for $62,100. The annual variable production costs associated with the old machine are estimated to be $155,900 per year for eight years. The annual variable production costs for the new machine are estimated to be $99,300 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 c37c44fcd021056_1 $fill in the blank c37c44fcd021056_2 $fill in the blank c37c44fcd021056_3 Costs: Purchase price fill in the blank c37c44fcd021056_4 fill in the blank c37c44fcd021056_5 fill in the blank c37c44fcd021056_6 Variable productions costs (8 years) fill in the blank c37c44fcd021056_7 fill in the blank c37c44fcd021056_8 fill in the blank c37c44fcd021056_9 Income (Loss) $fill in the blank c37c44fcd021056_10 $fill in the blank c37c44fcd021056_11 $fill in the blank c37c44fcd021056_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 93544a08f038032_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 $601,100 and has $350,100 of accumulated depreciation to date, with a new machine that has a purchase price of $485,500. The old machine could be sold for $62,100. The annual variable production costs associated with the old machine are estimated to be $155,900 per year for eight years. The annual variable production costs for the new machine are estimated to be $99,300 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 c37c44fcd021056_1	$fill in the blank c37c44fcd021056_2	$fill in the blank c37c44fcd021056_3
Costs:
Purchase price	fill in the blank c37c44fcd021056_4	fill in the blank c37c44fcd021056_5	fill in the blank c37c44fcd021056_6
Variable productions costs (8 years)	fill in the blank c37c44fcd021056_7	fill in the blank c37c44fcd021056_8	fill in the blank c37c44fcd021056_9
Income (Loss)	$fill in the blank c37c44fcd021056_10	$fill in the blank c37c44fcd021056_11	$fill in the blank c37c44fcd021056_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 93544a08f038032_1.

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