A machine with a book value of $247,100 has an estimated six-year life. A proposal is offered to sell the old machine for $216,800 and replace it with a new machine at a cost of $280,700. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from $50,700 to $40,600. a. Prepare a differential analysis dated April 11 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate subtracted or negative numbers or a loss. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) April 11 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 1d230a036f95fc2_1 $fill in the blank 1d230a036f95fc2_2 $fill in the blank 1d230a036f95fc2_3 Costs: Purchase price fill in the blank 1d230a036f95fc2_4 fill in the blank 1d230a036f95fc2_5 fill in the blank 1d230a036f95fc2_6 Direct labor (6 years) fill in the blank 1d230a036f95fc2_7 fill in the blank 1d230a036f95fc2_8 fill in the blank 1d230a036f95fc2_9 Income (Loss) $fill in the blank 1d230a036f95fc2_10 $fill in the blank 1d230a036f95fc2_11 $fill in the blank 1d230a036f95fc2_12 b. 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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Replace Equipment

A machine with a book value of $247,100 has an estimated six-year life. A proposal is offered to sell the old machine for $216,800 and replace it with a new machine at a cost of $280,700. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from $50,700 to $40,600.

a. Prepare a differential analysis dated April 11 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate subtracted or negative numbers or a loss.

Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
April 11
	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 1d230a036f95fc2_1	$fill in the blank 1d230a036f95fc2_2	$fill in the blank 1d230a036f95fc2_3
Costs:
Purchase price	fill in the blank 1d230a036f95fc2_4	fill in the blank 1d230a036f95fc2_5	fill in the blank 1d230a036f95fc2_6
Direct labor (6 years)	fill in the blank 1d230a036f95fc2_7	fill in the blank 1d230a036f95fc2_8	fill in the blank 1d230a036f95fc2_9
Income (Loss)	$fill in the blank 1d230a036f95fc2_10	$fill in the blank 1d230a036f95fc2_11	$fill in the blank 1d230a036f95fc2_12

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

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