Differential Analysis for Machine Replacement Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $73,400, the accumulated depreciation is $29,400, 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 $152,700. 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: Present Operations Proposed Operations Sales $232,700 $232,700 Direct materials $79,300 $79,300 Direct labor 55,100 — Power and maintenance 5,100 27,200 Taxes, insurance, etc. 1,800 6,100 Selling and administrative expenses 55,100 55,100 Total expenses $196,400 $167,700 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". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) May 4 Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Differential Effect on Income (Alternative 2) Revenues: Sales (5 years) $fill in the blank 764043fcffaa024_1 $fill in the blank 764043fcffaa024_2 $fill in the blank 764043fcffaa024_3 Costs: Purchase price fill in the blank 764043fcffaa024_4 fill in the blank 764043fcffaa024_5 fill in the blank 764043fcffaa024_6 Direct materials (5 years) fill in the blank 764043fcffaa024_7 fill in the blank 764043fcffaa024_8 fill in the blank 764043fcffaa024_9 Direct labor (5 years) fill in the blank 764043fcffaa024_10 fill in the blank 764043fcffaa024_11 fill in the blank 764043fcffaa024_12 Power and maintenance (5 years) fill in the blank 764043fcffaa024_13 fill in the blank 764043fcffaa024_14 fill in the blank 764043fcffaa024_15 Taxes, insurance, etc. (5 years) fill in the blank 764043fcffaa024_16 fill in the blank 764043fcffaa024_17 fill in the blank 764043fcffaa024_18 Selling and admin. expenses (5 years) fill in the blank 764043fcffaa024_19 fill in the blank 764043fcffaa024_20 fill in the blank 764043fcffaa024_21 Income (Loss) $fill in the blank 764043fcffaa024_22 $fill in the blank 764043fcffaa024_23 $fill in the blank 764043fcffaa024_24 b. Based only on the data presented, should the proposal be accepted? c. Differences in capacity between the two alternatives is to consider before a final decision is made.

Differential Analysis for Machine Replacement Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $73,400, the accumulated depreciation is $29,400, 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 $152,700. 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: Present Operations Proposed Operations Sales $232,700 $232,700 Direct materials $79,300 $79,300 Direct labor 55,100 — Power and maintenance 5,100 27,200 Taxes, insurance, etc. 1,800 6,100 Selling and administrative expenses 55,100 55,100 Total expenses $196,400 $167,700 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". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) May 4 Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Differential Effect on Income (Alternative 2) Revenues: Sales (5 years) $fill in the blank 764043fcffaa024_1 $fill in the blank 764043fcffaa024_2 $fill in the blank 764043fcffaa024_3 Costs: Purchase price fill in the blank 764043fcffaa024_4 fill in the blank 764043fcffaa024_5 fill in the blank 764043fcffaa024_6 Direct materials (5 years) fill in the blank 764043fcffaa024_7 fill in the blank 764043fcffaa024_8 fill in the blank 764043fcffaa024_9 Direct labor (5 years) fill in the blank 764043fcffaa024_10 fill in the blank 764043fcffaa024_11 fill in the blank 764043fcffaa024_12 Power and maintenance (5 years) fill in the blank 764043fcffaa024_13 fill in the blank 764043fcffaa024_14 fill in the blank 764043fcffaa024_15 Taxes, insurance, etc. (5 years) fill in the blank 764043fcffaa024_16 fill in the blank 764043fcffaa024_17 fill in the blank 764043fcffaa024_18 Selling and admin. expenses (5 years) fill in the blank 764043fcffaa024_19 fill in the blank 764043fcffaa024_20 fill in the blank 764043fcffaa024_21 Income (Loss) $fill in the blank 764043fcffaa024_22 $fill in the blank 764043fcffaa024_23 $fill in the blank 764043fcffaa024_24 b. Based only on the data presented, should the proposal be accepted? c. Differences in capacity between the two alternatives is to consider before a final decision is made.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Differential Analysis for Machine Replacement

Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $73,400, the accumulated depreciation is $29,400, 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 $152,700. 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:

	Present Operations	Proposed Operations
Sales	$232,700	$232,700
Direct materials	$79,300	$79,300
Direct labor	55,100	—
Power and maintenance	5,100	27,200
Taxes, insurance, etc.	1,800	6,100
Selling and administrative expenses	55,100	55,100
Total expenses	$196,400	$167,700

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". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
May 4
	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues:
Sales (5 years)	$fill in the blank 764043fcffaa024_1	$fill in the blank 764043fcffaa024_2	$fill in the blank 764043fcffaa024_3
Costs:
Purchase price	fill in the blank 764043fcffaa024_4	fill in the blank 764043fcffaa024_5	fill in the blank 764043fcffaa024_6
Direct materials (5 years)	fill in the blank 764043fcffaa024_7	fill in the blank 764043fcffaa024_8	fill in the blank 764043fcffaa024_9
Direct labor (5 years)	fill in the blank 764043fcffaa024_10	fill in the blank 764043fcffaa024_11	fill in the blank 764043fcffaa024_12
Power and maintenance (5 years)	fill in the blank 764043fcffaa024_13	fill in the blank 764043fcffaa024_14	fill in the blank 764043fcffaa024_15
Taxes, insurance, etc. (5 years)	fill in the blank 764043fcffaa024_16	fill in the blank 764043fcffaa024_17	fill in the blank 764043fcffaa024_18
Selling and admin. expenses (5 years)	fill in the blank 764043fcffaa024_19	fill in the blank 764043fcffaa024_20	fill in the blank 764043fcffaa024_21
Income (Loss)	$fill in the blank 764043fcffaa024_22	$fill in the blank 764043fcffaa024_23	$fill in the blank 764043fcffaa024_24

b. Based only on the data presented, should the proposal be accepted?

c. Differences in capacity between the two alternatives is to consider before a final decision is made.

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