Differential Analysis for Machine Replacement Proposal Gutenberg Publishers Inc. is considering replacing a machine that has been used in its factory for 4 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, 10-year life Annual depreciation (straight-line) Annual manufacturing costs, excluding depreciation Annual nonmanufacturing operating expenses Annual revenue Current estimated selling price of the machine New Machine $120,000 12,000 30,000 22,500 90,000 40,000 Purchase price of machine, 6-year life $160,000 Annual depreciation (straight-line) 16,000 Estimated annual manufacturing costs, excluding depreciation 7,500 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 30 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the total differential profit that would result over the 6-year period if the new machine is acquired. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
Differential Analysis for Machine Replacement Proposal Gutenberg Publishers Inc. is considering replacing a machine that has been used in its factory for 4 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, 10-year life Annual depreciation (straight-line) Annual manufacturing costs, excluding depreciation Annual nonmanufacturing operating expenses Annual revenue Current estimated selling price of the machine New Machine $120,000 12,000 30,000 22,500 90,000 40,000 Purchase price of machine, 6-year life $160,000 Annual depreciation (straight-line) 16,000 Estimated annual manufacturing costs, excluding depreciation 7,500 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 30 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the total differential profit that would result over the 6-year period if the new machine is acquired. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:1. Prepare a differential analysis as of November 30 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative
2). The analysis should indicate the total differential profit that would result over the 6-year period if the new machine is acquired. If an amount is zero, enter "0". If
required, use a minus sign to indicate a loss.
Revenues:
Differential Analysis
Continue with (Alt. 1) or Replace (Alt. 2) Old Machine
November 30
Line Item Description
Costs:
Proceeds from sale of old machine $ 90,000 X
Continue with Old
Machine (Alternative 1)
Purchase price
Annual manufacturing costs (6 yrs.)
Profit (loss)
Replace Old Machine Differential Effect
(Alternative 2) (Alternative 2)
$
1000
$
000
Transcribed Image Text:Differential Analysis for Machine Replacement Proposal
Gutenberg Publishers Inc. is considering replacing a machine that has been used in its factory for 4 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, 10-year life
Annual depreciation (straight-line)
Annual manufacturing costs, excluding depreciation
Annual nonmanufacturing operating expenses
Annual revenue
Current estimated selling price of the machine
New Machine
$120,000
12,000
30,000
22,500
90,000
40,000
Purchase price of machine, 6-year life
$160,000
Annual depreciation (straight-line)
16,000
Estimated annual manufacturing costs, excluding depreciation
7,500
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 30 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative
2). The analysis should indicate the total differential profit that would result over the 6-year period if the new machine is acquired. If an amount is zero, enter "0". If
required, use a minus sign to indicate a loss.
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