Differential Analysis for Machine ReplacementRidgeway Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of themachine is $200,000, the accumulated depreciation is $50,000, its remaining useful life is 6 years, and its residual value is negligible. On October 1 of the currentyear, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $500,000. The automaticmachine has an estimated useful life of 6 years and no significant residual value. For use in evaluating the proposal, the managerial accountant accumulated thefollowing annual data on present and proposed operations:SalesDirect materialsDirect laborPower and maintenanceTaxes, insurance, etc.Selling and administrative expensesTotal expensesPresent ProposedOperations Operations$400,000 $400,000$120,000$120,00090,0009,0001,00050,000$270,000-26,0004,00050,000$200,000a. Prepare a differential analysis dated October 1 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. Prepare theanalysis 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. Choma. Prepare a differential analysis dated October 1 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine, Prepare theanalysis 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.Revenues:Line Item DescriptionSales (6 years)Costs:Differential AnalysisContinue with (Alt. 1) or Replace (Alt. 2) Old MachineOctober 1Continue withOld Machine(Alternative 1)Purchase priceDirect materials (6 years)Direct labor (6 years)Power and maintenance (6 years).Taxes, insurance, etc. (6 years)Selling and admin. expenses (6 years)Profit (loss)0XXXXXReplace Old Machine(Alternative 2)0✓XXDifferential Effects(Alternative 2)X

The differential analysis is performed to compare the different alternatives available with the…

Differential Analysis for Machine Replacement Ridgeway Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $200,000, the accumulated depreciation is $50,000, its remaining useful life is 6 years, and its residual value is negligible. On October 1 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 $500,000. The automatic machine has an estimated useful life of 6 years and no significant residual value. For use in evaluating the proposal, the managerial 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 Present Proposed Operations Operations $400,000 $400,000 $120,000 $120,000 90,000 9,000 26,000 1,000 4,000 50,000 50,000 $270,000 $200,000 - dated October 1 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. Prepare the

Differential Analysis for Machine Replacement Ridgeway Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $200,000, the accumulated depreciation is $50,000, its remaining useful life is 6 years, and its residual value is negligible. On October 1 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 $500,000. The automatic machine has an estimated useful life of 6 years and no significant residual value. For use in evaluating the proposal, the managerial 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 Present Proposed Operations Operations $400,000 $400,000 $120,000 $120,000 90,000 9,000 26,000 1,000 4,000 50,000 50,000 $270,000 $200,000 - dated October 1 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. Prepare the

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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ex2. 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…