Burlington Construction Company is considering selling excess machinery with a book value of $115,000 (original cost of $275,000 less accumulated depreciation of $160,000) for $90,000, less a 6% brokerage commission. Alternatively, the machinery can be leased for a total of $100,000, for four years, after which it is expected to have no residual value. During the period of the lease, Burlington Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $9,000. a. Prepare a differential analysis dated January 15 to determine whether Burlington 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 January 15 Lease Sell Differential Machinery Machinery Effect (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs Profit (Loss)

Burlington Construction Company is considering selling excess machinery with a book value of $115,000 (original cost of $275,000 less accumulated depreciation of $160,000) for $90,000, less a 6% brokerage commission. Alternatively, the machinery can be leased for a total of $100,000, for four years, after which it is expected to have no residual value. During the period of the lease, Burlington Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $9,000. a. Prepare a differential analysis dated January 15 to determine whether Burlington 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 January 15 Lease Sell Differential Machinery Machinery Effect (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs Profit (Loss)

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 1E: Differential analysis for a lease or sell decision Burlington Construction Company is considering...

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Question

Differential Analysis for a Lease or Sell Decision
Burlington Construction Company is considering selling excess machinery with a book value of $115,000 (original cost of $275,000 less accumulated depreciation of $160,000) for
$90,000, less a 6% brokerage commission. Alternatively, the machinery can be leased for a total of $100,000, for four years, after which it is expected to have no residual value. During
the period of the lease, Burlington Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $9,000.
a. Prepare a differential analysis dated January 15 to determine whether Burlington 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
January 15
Lease
Sell
Differential
Machinery
(Alternative 1) (Alternative 2) (Alternative 2)
Machinery
Effect
Revenues
%$4
Costs
Profit (Loss)

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