Differential Analysis for Machine Replacement Proposal Flint Tooling Company is considering replacing a machine that has been used in its factory for two years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows: Old Machine Cost of machine, eight-year life $38,000 Annual depreciation (straight-line) 4,750 Annual manufacturing costs, excluding depreciation 12,400 Annual nonmanufacturing operating expenses 2,700 Annual revenue 32,400 Current estimated selling price of the machine 12,900 New Machine Cost of machine, six-year life $57,000 Annual depreciation (straight-line) 9,500 Estimated annual manufacturing costs, exclusive of depreciation 3,400 Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine. Required: 1. Prepare a differential analysis as of November 8 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the differential income that would result over the six-year period if the new machine is acquired. If an amount is zero, enter zero "0". Use a minus sign to indicate a loss. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) November 8 Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Differential Effect on Income (Alternative 2) Revenues: Proceeds from sale of old machine $fill in the blank c2d05f04c075f9a_1 $fill in the blank c2d05f04c075f9a_2 $fill in the blank c2d05f04c075f9a_3 Costs: Purchase price fill in the blank c2d05f04c075f9a_4 fill in the blank c2d05f04c075f9a_5 fill in the blank c2d05f04c075f9a_6 Annual manufacturing costs (6 yrs.) fill in the blank c2d05f04c075f9a_7 fill in the blank c2d05f04c075f9a_8 fill in the blank c2d05f04c075f9a_9 Income (Loss) $fill in the blank c2d05f04c075f9a_10 $fill in the blank c2d05f04c075f9a_11 $fill in the blank c2d05f04c075f9a_12 2. What other factors should be considered before a final decision is reached? Are there any improvements in the quality of work turned out by the new machine? What opportunities are available for the use of the funds required to purchase the new machine? Are there any improvements in the quality of work turned out by the new machine and what opportunities are available for the use of the funds required to purchase the new machine? What effect would this decision have on employee morale? None of these choices is correct.

Differential Analysis for Machine Replacement Proposal Flint Tooling Company is considering replacing a machine that has been used in its factory for two years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows: Old Machine Cost of machine, eight-year life $38,000 Annual depreciation (straight-line) 4,750 Annual manufacturing costs, excluding depreciation 12,400 Annual nonmanufacturing operating expenses 2,700 Annual revenue 32,400 Current estimated selling price of the machine 12,900 New Machine Cost of machine, six-year life $57,000 Annual depreciation (straight-line) 9,500 Estimated annual manufacturing costs, exclusive of depreciation 3,400 Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine. Required: 1. Prepare a differential analysis as of November 8 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the differential income that would result over the six-year period if the new machine is acquired. If an amount is zero, enter zero "0". Use a minus sign to indicate a loss. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) November 8 Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Differential Effect on Income (Alternative 2) Revenues: Proceeds from sale of old machine $fill in the blank c2d05f04c075f9a_1 $fill in the blank c2d05f04c075f9a_2 $fill in the blank c2d05f04c075f9a_3 Costs: Purchase price fill in the blank c2d05f04c075f9a_4 fill in the blank c2d05f04c075f9a_5 fill in the blank c2d05f04c075f9a_6 Annual manufacturing costs (6 yrs.) fill in the blank c2d05f04c075f9a_7 fill in the blank c2d05f04c075f9a_8 fill in the blank c2d05f04c075f9a_9 Income (Loss) $fill in the blank c2d05f04c075f9a_10 $fill in the blank c2d05f04c075f9a_11 $fill in the blank c2d05f04c075f9a_12 2. What other factors should be considered before a final decision is reached? Are there any improvements in the quality of work turned out by the new machine? What opportunities are available for the use of the funds required to purchase the new machine? Are there any improvements in the quality of work turned out by the new machine and what opportunities are available for the use of the funds required to purchase the new machine? What effect would this decision have on employee morale? None of these choices is correct.

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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Question

Differential Analysis for Machine Replacement Proposal

Flint Tooling Company is considering replacing a machine that has been used in its factory for two years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows:

Old Machine
Cost of machine, eight-year life	$38,000
Annual depreciation (straight-line)	4,750
Annual manufacturing costs, excluding depreciation	12,400
Annual nonmanufacturing operating expenses	2,700
Annual revenue	32,400
Current estimated selling price of the machine	12,900

New Machine
Cost of machine, six-year life	$57,000
Annual depreciation (straight-line)	9,500
Estimated annual manufacturing costs, exclusive of depreciation	3,400

Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.

Required:

1. Prepare a differential analysis as of November 8 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the differential income that would result over the six-year period if the new machine is acquired. If an amount is zero, enter zero "0". Use a minus sign to indicate a loss.

Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
November 8
	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues:
Proceeds from sale of old machine	$fill in the blank c2d05f04c075f9a_1	$fill in the blank c2d05f04c075f9a_2	$fill in the blank c2d05f04c075f9a_3
Costs:
Purchase price	fill in the blank c2d05f04c075f9a_4	fill in the blank c2d05f04c075f9a_5	fill in the blank c2d05f04c075f9a_6
Annual manufacturing costs (6 yrs.)	fill in the blank c2d05f04c075f9a_7	fill in the blank c2d05f04c075f9a_8	fill in the blank c2d05f04c075f9a_9
Income (Loss)	$fill in the blank c2d05f04c075f9a_10	$fill in the blank c2d05f04c075f9a_11	$fill in the blank c2d05f04c075f9a_12

2. What other factors should be considered before a final decision is reached?

Are there any improvements in the quality of work turned out by the new machine?
What opportunities are available for the use of the funds required to purchase the new machine?
Are there any improvements in the quality of work turned out by the new machine and what opportunities are available for the use of the funds required to purchase the new machine?
What effect would this decision have on employee morale?
None of these choices is correct.

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