Differential Analysis for a Lease or Sell DecisionBurlington Construction Company is considering sellingexcess machinery with a book value of $282,000(original cost of $400,500 less accumulated depreciationof $118,500) for $276,600, less a 5% brokeragecommission. Alternatively, the machinery can be leasedfor a total of $286,200 for five years, after which it isexpected to have no residual value. During the period ofthe lease, Burlington Construction Company's costs ofrepairs, insurance, and property tax expenses areexpected to be $26,000.a. Prepare a differential analysis dated January 15 todetermine whether Burlington Construction Companyshould lease (Alternative 1) or sell (Alternative 2) themachinery. If required, use a minus sign to indicate aloss.Differential AnalysisLease (Alt. 1) or Sell (Alt. 2) MachineryJanuary 15RevenuesCostsProfit (Loss)LeaseSellDifferentialMachineryMachineryEffects(Alternative 1) (Alternative 2) (Alternative 2)$b. On the basis of the data presented, would it beadvisable to lease or sell the machinery?

a. Differential analysis Lease Machinery (a) Sell Machinery (b) Differential Effect on Income (a - b) Revenues $286,200 $276,600 $9,600 Costs $26,000 $13,830* $12,170 Income (Loss) $260,200 $262,770 ($2,570) *$276,000 x 5% = $13,830b. It would be advisable to sell the machinery because the net income is higher in the selling option.

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Differential Analysis for a Lease or Sell Decision Burlington Construction Company is considering selling excess machinery with a book value of $282,000 (original cost of $400,500 less accumulated depreciation of $118,500) for $276,600, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $286,200 for five 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 $26,000.

Differential Analysis for a Lease or Sell Decision Burlington Construction Company is considering selling excess machinery with a book value of $282,000 (original cost of $400,500 less accumulated depreciation of $118,500) for $276,600, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $286,200 for five 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 $26,000.

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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