A company is considering replacing an old piece of machinery, which cost $650,000 and has $350,000 of accumulated depreciation to date, with a new machine that has a purchase price of $545,000. The old machine could be sold for $251,000. The annual variable production costs associated with the old machine are estimated to be $71,000 per year for eight years. The annual variable production costs for the new machine are estimated to be $21,000 per year for eight years. a. Prepare a differential analysis dated September 13, 2022 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. b. What is the sunk cost and its value in this situation?

A company is considering replacing an old piece of machinery, which cost $650,000 and has $350,000 of accumulated depreciation to date, with a new machine that has a purchase price of $545,000. The old machine could be sold for $251,000. The annual variable production costs associated with the old machine are estimated to be $71,000 per year for eight years. The annual variable production costs for the new machine are estimated to be $21,000 per year for eight years. a. Prepare a differential analysis dated September 13, 2022 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. b. What is the sunk cost and its value in this situation?

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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Subject: accounting

3. A company is considering replacing an old piece of machinery, which cost $650,000 and has
$350,000 of accumulated depreciation to date, with a new machine that has a purchase price of
$545,000. The old machine could be sold for $251,000. The annual variable production costs
associated with the old machine are estimated to be $71,000 per year for eight years. The
annual variable production costs for the new machine are estimated to be $21,000 per year for
eight years.
a. Prepare a differential analysis dated September 13, 2022 to determine whether to
continue with (Alternative 1) or replace (Alternative 2) the old machine.
b. What is the sunk cost and its value in this situation?

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