Differential Analysis for Machine ReplacementKim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $60,000, the accumulated depreciation is $24,000, its remaining useful life is five years, and its residual value is negligible. On May 4 of the currentyear, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $180,000. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the followingannual data on present and proposed operations:PresentProposedOperationsOperationsSales$205,000$205,000Direct materials$72,000$72,000Direct labor51,000Power and maintenance5,00018.000Taxes, insurance, etc.1,5004,000Selling and administrative expenses45,00045,000Total expenses$174,500$139,000a. Prepare a differential analysis dated May 4 to determine whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). Prepare the analysis over the useful life of the new machine. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negativenumbers use a minus sign.Differential AnalysisContinue with old Machine (Alt. 1) or Replace old Machine (Alt. 2)May 4DifferentialEffectContinueReplacewith OldOldon Income(Alternative 1) (Alternative 2) (Alternative 2)MachineMachineRevenues:Sales (5 years)Costs:Purchase priceDirect materials (5 years)Direct labor (5 years)Power and maintenance (5 years)Taxes, insurance, etc. (5 years)Selling and admin. expenses (5 years)Income (Loss)$

Differential analysis refers to a method or technique used by the company in decision making process…

a. Prepare a differential analysis dated May 4 to determine whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). Prepare the analysis over the useful life of the new machine. 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) May 4 Continue Differential Replace Old with Old Machine (Alternative 1) (Alternative 2) (Alternative 2) Effect Machine on Income Revenues: Sales (5 years) Costs: Purchase price Direct materials (5 years) Direct labor (5 years) Power and maintenance (5 years) Taxes, insurance, etc. (5 years) Selling and admin. expenses (5 years) Income (Loss)

a. Prepare a differential analysis dated May 4 to determine whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). Prepare the analysis over the useful life of the new machine. 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) May 4 Continue Differential Replace Old with Old Machine (Alternative 1) (Alternative 2) (Alternative 2) Effect Machine on Income Revenues: Sales (5 years) Costs: Purchase price Direct materials (5 years) Direct labor (5 years) Power and maintenance (5 years) Taxes, insurance, etc. (5 years) Selling and admin. expenses (5 years) Income (Loss)

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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