Replace equipmentA machine with a book value of $86,000 has an estimated five-year life. A proposal is offered to sell the old machine for $40,500 and replace it with a new machine at a cost of $67,000. The new machine has a five-year life with no residual value. The new machine would reduce annual direct labor costs from $10,300 to $9,700.This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.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 costs, losses, or negative differential effect on income. **Differential Analysis: Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)***Date: April 11*This analysis evaluates whether a company should continue using its old machine or replace it with a new one. It compares the revenues and costs associated with each option over a specified period, showing the financial impact of both alternatives.**Revenues:**- **Proceeds from Sale of Old Machine** - Continue with Old Machine (Alternative 1): $ (input field) - Replace Old Machine (Alternative 2): $ (input field) - Differential Effects (Alternative 2): $ (input field)**Costs:**- **Purchase Price** - Continue with Old Machine (Alternative 1): $ (input field) - Replace Old Machine (Alternative 2): $ (input field) - Differential Effects (Alternative 2): $ (input field)- **Direct Labor (5 years)** - Continue with Old Machine (Alternative 1): $ (input field) - Replace Old Machine (Alternative 2): $ (input field) - Differential Effects (Alternative 2): $ (input field)**Profit (Loss):**- Continue with Old Machine (Alternative 1): $ (input field)- Replace Old Machine (Alternative 2): $ (input field)- Differential Effects (Alternative 2): $ (input field)**Decision:**Should the company continue with the old machine (Alternative 1) or replace the old machine (Alternative 2)?*Recommended Action:*- **Continue with the old machine** ✔This model assists in making a financial decision between retaining existing equipment or investing in new technology by illustrating potential monetary outcomes.

Total direct labor cost with Old Machine = $10,300 x 5 years = $51,500 Total direct labor cost with New Machine = $9,700 x 5 years = $48,500Differential Analysis Continue with Old Machine(Alternative 1) Replace old Machine (Alternative 2) Differential effects (Alternative 2) Revenues: Proceeds from sale of old Machine 0 $40,500 $40,500 Costs: Purchase price 0 $-67,000 $-67,000 Direct labor (5 years) $-51,500 $-48,500 $3,000 Profit (loss) $-51,500 $-75,000 $-23,500 Continue with ols machine

Answered: A machine with a book value of $86,000…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Concept explainers

Question

Replace equipment

A machine with a book value of $86,000 has an estimated five-year life. A proposal is offered to sell the old machine for $40,500 and replace it with a new machine at a cost of $67,000. The new machine has a five-year life with no residual value. The new machine would reduce annual direct labor costs from $10,300 to $9,700.

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.

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 costs, losses, or negative differential effect on income.

**Differential Analysis: Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)**

*Date: April 11*

This analysis evaluates whether a company should continue using its old machine or replace it with a new one. It compares the revenues and costs associated with each option over a specified period, showing the financial impact of both alternatives.

**Revenues:**

- **Proceeds from Sale of Old Machine**
- Continue with Old Machine (Alternative 1): $ (input field)
- Replace Old Machine (Alternative 2): $ (input field)
- Differential Effects (Alternative 2): $ (input field)

**Costs:**

- **Purchase Price**
- Continue with Old Machine (Alternative 1): $ (input field)
- Replace Old Machine (Alternative 2): $ (input field)
- Differential Effects (Alternative 2): $ (input field)

- **Direct Labor (5 years)**
- Continue with Old Machine (Alternative 1): $ (input field)
- Replace Old Machine (Alternative 2): $ (input field)
- Differential Effects (Alternative 2): $ (input field)

**Profit (Loss):**

- Continue with Old Machine (Alternative 1): $ (input field)
- Replace Old Machine (Alternative 2): $ (input field)
- Differential Effects (Alternative 2): $ (input field)

**Decision:**

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

*Recommended Action:*

- **Continue with the old machine** ✔

This model assists in making a financial decision between retaining existing equipment or investing in new technology by illustrating potential monetary outcomes.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions