A company is considering replacing an old piece of machinery, which cost $601,200 and has $349,600 of accumulated depreciation to date, with a new machine that has a purchase price of $486,600. The old machine could be sold for $64,200. The annual variable production costs associated with the old machine are estimated to be $158,500 per year for eight years. The annual variable production costs for the new machine are estimated to be $98,700 per year for eight years. a.1 Prepare a differential analysis dated May 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) May 29 Continue Replace with Old Old Differential Machine Machine Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues: Proceeds from sale of old machine 64,200 X Costs: Purchase price Variable productions costs (8 years) Profit (Loss)
A company is considering replacing an old piece of machinery, which cost $601,200 and has $349,600 of accumulated depreciation to date, with a new machine that has a purchase price of $486,600. The old machine could be sold for $64,200. The annual variable production costs associated with the old machine are estimated to be $158,500 per year for eight years. The annual variable production costs for the new machine are estimated to be $98,700 per year for eight years. a.1 Prepare a differential analysis dated May 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) May 29 Continue Replace with Old Old Differential Machine Machine Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues: Proceeds from sale of old machine 64,200 X Costs: Purchase price Variable productions costs (8 years) Profit (Loss)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
![**Machine Replacement Decision**
A company is considering replacing an old piece of machinery, which cost $601,200 and has $349,600 of accumulated depreciation to date, with a new machine that has a purchase price of $486,600. The old machine could be sold for $64,200. The annual variable production costs associated with the old machine are estimated to be $158,500 per year for eight years. The annual variable production costs for the new machine are estimated to be $98,700 per year for eight years.
**a.1** Prepare a differential analysis dated May 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
**Differential Analysis: Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) – May 29**
| | Continue with Old Machine (Alternative 1) | Replace Old Machine (Alternative 2) | Differential Effects (Alternative 2) |
|--------------------|-------------------------------------------|-------------------------------------|-------------------------------------|
| **Revenues:** | | | |
| Proceeds from sale of old machine | $64,200 (given) | | |
| **Costs:** | | | |
| Purchase price | | | |
| Variable production costs (8 years) | | | |
| **Profit (Loss)** | | | |
**Feedback**
**Check My Work**
For the continue and replace alternatives, subtract the costs from the revenues. Multiply the variable production costs for the eight-year life. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F76fa1c35-91ea-40f4-a9b4-5eaf8a51d8cb%2F07c31720-c3a3-47e3-ad55-858ed7178553%2Fl47o2ya_processed.png&w=3840&q=75)
Transcribed Image Text:**Machine Replacement Decision**
A company is considering replacing an old piece of machinery, which cost $601,200 and has $349,600 of accumulated depreciation to date, with a new machine that has a purchase price of $486,600. The old machine could be sold for $64,200. The annual variable production costs associated with the old machine are estimated to be $158,500 per year for eight years. The annual variable production costs for the new machine are estimated to be $98,700 per year for eight years.
**a.1** Prepare a differential analysis dated May 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
**Differential Analysis: Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) – May 29**
| | Continue with Old Machine (Alternative 1) | Replace Old Machine (Alternative 2) | Differential Effects (Alternative 2) |
|--------------------|-------------------------------------------|-------------------------------------|-------------------------------------|
| **Revenues:** | | | |
| Proceeds from sale of old machine | $64,200 (given) | | |
| **Costs:** | | | |
| Purchase price | | | |
| Variable production costs (8 years) | | | |
| **Profit (Loss)** | | | |
**Feedback**
**Check My Work**
For the continue and replace alternatives, subtract the costs from the revenues. Multiply the variable production costs for the eight-year life. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2.
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