Differential Analysis for Machine Replacement Boyer Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $65,600, the accumulated depreciation is $26,200, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $136,400. 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 following annual data on present and proposed operations: Sales Direct materials Direct labor Power and maintenance Taxes, insurance, etc. Selling and administrative expenses Total expenses Revenues: Present Operations $208,000 $70,800 49,200 4,600 1,600 49,200 $175,400 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". If required, use a minus sign to indicate a loss. Sales (5 years) Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) May 4 Proposed Operations $208,000 $70,800 e 1.040.000 24,300 5,400 49,200 $149,700 Continue with Old Machine (Alternative 1) (Alternative 2) (Alternative 2) Replace Old Machine 1.040.000 Differential Effects
Differential Analysis for Machine Replacement Boyer Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $65,600, the accumulated depreciation is $26,200, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $136,400. 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 following annual data on present and proposed operations: Sales Direct materials Direct labor Power and maintenance Taxes, insurance, etc. Selling and administrative expenses Total expenses Revenues: Present Operations $208,000 $70,800 49,200 4,600 1,600 49,200 $175,400 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". If required, use a minus sign to indicate a loss. Sales (5 years) Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) May 4 Proposed Operations $208,000 $70,800 e 1.040.000 24,300 5,400 49,200 $149,700 Continue with Old Machine (Alternative 1) (Alternative 2) (Alternative 2) Replace Old Machine 1.040.000 Differential Effects
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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". If required, use a minus sign to indicate a loss.
Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
May 4
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)
Profit (Loss)
Continue
with Old
Replace
Machine Old Machine
(Alternative 1) (Alternative 2) (Alternative 2)
Differential
Effects
1,040,000
1,040,000
b. Based only on the data presented, should the proposal be accepted?
c. Differences in capacity between the two alternatives is
0
4
to consider before a final decision is made.
Transcribed Image Text:Differential Analysis for Machine Replacement
Boyer Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $65,600, the accumulated depreciation is
$26,200, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic
machine that has a purchase price of $136,400. 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 following annual data on present and proposed operations:
Sales
Direct materials
Direct labor
Power and maintenance
Taxes, insurance, etc.
Selling and administrative expenses
Total expenses
Revenues:
Present
Operations
$208,000
$70,800
49,200
4,600
1,600
49,200
$175,400
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". If required, use a minus sign to indicate a loss.
Sales (5 years)
Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
May 4
Proposed
Operations
$208,000
$70,800
1.040.000
24,300
5,400
49,200
$149,700
Continue
with Old
Replace
Old Machine
(Alternative 1) (Alternative 2) (Alternative 2)
Differential
Effects
Machine
1.040 000
4
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