Differential Analysis for a Lease-or-sell DecisionStowe Construction Company is considering selling excess machinery with a book value of $278,500 (original cost of $398,600 less accumulated depreciation of $120,100) for $277,900, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $287,300 for 5 years, after which it is expected to have no residual value.During the period of the lease, Stowe Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $24,900.a. Prepare a differential analysis dated March 21 to determine whether Stowe Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. If required, use a minus sign to indicate a loss.Differential AnalysisLease (Alt. 1) or Sell (Alt. 2) MachineryMarch 21LeaseSellLine Item Description Machinery MachineryM24,900 ✔RevenuesCostsProfit (loss)FeedbackCheck My WorkDifferentialEffects(Alternative 1) (Alternative 2) (Alternative 2)277,900 ✔Eb. On the basis of the data presented, would it be advisable to lease or sell the machinery?

Differential Analysis is a technique used for decision making in selection of best alternative out…

a. Prepare a differential analysis dated March 21 to determine whether Stove Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. If required, use a minus sign to indicate a loss. Differential Analysis Lease (Alt. 1) or Sell (Alt. 2) Machinery March 21 Lease Sell Line Item Description Machinery Machinery Revenues Costs Profic (loss) Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) 277.900✔ 24.900✔ b. On the basis of the data presented, would it be advisable to lease or sell the machinery?

a. Prepare a differential analysis dated March 21 to determine whether Stove Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. If required, use a minus sign to indicate a loss. Differential Analysis Lease (Alt. 1) or Sell (Alt. 2) Machinery March 21 Lease Sell Line Item Description Machinery Machinery Revenues Costs Profic (loss) Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) 277.900✔ 24.900✔ b. On the basis of the data presented, would it be advisable to lease or sell the machinery?

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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Companion Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $57 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 46% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be as follows: Direct materials $28 Direct labor 16 Factory overhead (46% of direct labor) 7.36 Total cost per unit $51.36 If Companion Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 14% of the direct labor costs.
15.
c. Prepare the appropriate adjusting entry, if required, based on your calculations in (b).
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