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 $61,800, the accumulated depreciation is $24,700, its remaining useful life is 5 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 $128,500. The automatic machine has an estimated useful life of 5 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 $195,900 $195,900 $66,700 $66,700 46,400 4,300 1,500 46,400 $165,300 22,900 5,100 46,400 $141,100 a. Prepare a differential analysis dated October 1 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. 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 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 $61,800, the accumulated depreciation is $24,700, its remaining useful life is 5 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 $128,500. The automatic machine has an estimated useful life of 5 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 $195,900 $195,900 $66,700 $66,700 46,400 4,300 1,500 46,400 $165,300 22,900 5,100 46,400 $141,100 a. Prepare a differential analysis dated October 1 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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 $61,800, the accumulated depreciation is $24,700, its remaining useful life is 5 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 $128,500. The
automatic machine has an estimated useful life of 5 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
$195,900 $195,900
$66,700
$66,700
46,400
4,300
1,500
46,400
$165,300
Differential Analysis
22,900
5,100
46,400
$141,100
a. Prepare a differential analysis dated October 1 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. 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.
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