A company is considering replacing an old piece of machinery, which cost $601,500 and has $349,900 of accumulated depreciation to date, with a new machine that has a purchase price of $485,300. The old machine could be sold for $63,400. The annual variable production costs associated with the old machine are estimated to be $158,100 per year for 8 years. The annual variable production costs for the new machine are estimated to be $100,100 per year for 8 years. Question Content Area a.1 Prepare a differential analysis dated December 10 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 AnalysisContinue with (Alt. 1) or Replace (Alt. 2) Old MachineDecember 10 Line Item Description Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Differential Effects (Alternative 2) Revenues: Proceeds from sale of old machine $Proceeds from sale of old machine $Proceeds from sale of old machine $Proceeds from sale of old machine Costs: Purchase price Purchase price Purchase price Purchase price Variable productions costs (8 years) Variable productions costs (8 years) Variable productions costs (8 years) Variable productions costs (8 years) Profit (loss) $Profit (loss) $Profit (loss) $Profit (loss) b. What is the sunk cost in this situation? The sunk cost is fill in the blank 1 of 1$.

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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Question Content Area

a.1 Prepare a differential analysis dated December 10 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 AnalysisContinue with (Alt. 1) or Replace (Alt. 2) Old MachineDecember 10

Line Item Description	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effects (Alternative 2)
Revenues:
Proceeds from sale of old machine	$Proceeds from sale of old machine	$Proceeds from sale of old machine	$Proceeds from sale of old machine
Costs:
Purchase price	Purchase price	Purchase price	Purchase price
Variable productions costs (8 years)	Variable productions costs (8 years)	Variable productions costs (8 years)	Variable productions costs (8 years)
Profit (loss)	$Profit (loss)	$Profit (loss)	$Profit (loss)

b. What is the sunk cost in this situation?

The sunk cost is fill in the blank 1 of 1$.

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