A machine with a book value of $246,000 has an estimated six-year life. A proposal is offered to sell the old machine for $217,100 and replace it with a new machine at a cost of $280,000. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from $49,800 to $39,800. Prepare a differential analysis dated October 3 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). 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) October 3 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 8104d10e9fd9003_1 $fill in the blank 8104d10e9fd9003_2 $fill in the blank 8104d10e9fd9003_3 Costs: Purchase price fill in the blank 8104d10e9fd9003_4 fill in the blank 8104d10e9fd9003_5 fill in the blank 8104d10e9fd9003_6 Direct labor (6 years) fill in the blank 8104d10e9fd9003_7 fill in the blank 8104d10e9fd9003_8 fill in the blank 8104d10e9fd9003_9 Income (Loss) $fill in the blank 8104d10e9fd9003_10 $fill in the blank 8104d10e9fd9003_11 $fill in the blank 8104d10e9fd9003_12 Should the company continue with the old machine (Alternative 1) or replace the old machine (Alternative 2)?

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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A machine with a book value of $246,000 has an estimated six-year life. A proposal is offered to sell the old machine for $217,100 and replace it with a new machine at a cost of $280,000. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from $49,800 to $39,800.

Prepare a differential analysis dated October 3 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). 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)
October 3
	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 8104d10e9fd9003_1	$fill in the blank 8104d10e9fd9003_2	$fill in the blank 8104d10e9fd9003_3
Costs:
Purchase price	fill in the blank 8104d10e9fd9003_4	fill in the blank 8104d10e9fd9003_5	fill in the blank 8104d10e9fd9003_6
Direct labor (6 years)	fill in the blank 8104d10e9fd9003_7	fill in the blank 8104d10e9fd9003_8	fill in the blank 8104d10e9fd9003_9
Income (Loss)	$fill in the blank 8104d10e9fd9003_10	$fill in the blank 8104d10e9fd9003_11	$fill in the blank 8104d10e9fd9003_12

Should the company continue with the old machine (Alternative 1) or replace the old machine (Alternative 2)?

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