Differential Analysis for Machine Replacement Proposal Franklin Printing Company is considering replacing a machine that has been used in its factory for four years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated
Differential Analysis for Machine Replacement Proposal
Franklin Printing Company is considering replacing a machine that has been used in its factory for four 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 | $108,000 |
| Annual |
10,800 |
| Annual |
38,600 |
| Annual nonmanufacturing operating expenses | 12,400 |
| Annual revenue | 94,400 |
| Current estimated selling price of the machine | 35,000 |
| New Machine | |
| Cost of machine, six-year life | $136,800 |
| Annual depreciation (straight-line) | 22,800 |
| Estimated annual manufacturing costs, exclusive of depreciation | 17,700 |
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 total 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 1e7dd6fb002bfbc_1 | $fill in the blank 1e7dd6fb002bfbc_2 | $fill in the blank 1e7dd6fb002bfbc_3 |
| Costs | |||
| Purchase price | fill in the blank 1e7dd6fb002bfbc_4 | fill in the blank 1e7dd6fb002bfbc_5 | fill in the blank 1e7dd6fb002bfbc_6 |
| Annual manufacturing costs (6 yrs.) | fill in the blank 1e7dd6fb002bfbc_7 | fill in the blank 1e7dd6fb002bfbc_8 | fill in the blank 1e7dd6fb002bfbc_9 |
| Income (Loss) | $fill in the blank 1e7dd6fb002bfbc_10 | $fill in the blank 1e7dd6fb002bfbc_11 | $fill in the blank 1e7dd6fb002bfbc_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 affect would this decision have on employee morale?
- None of these choices is correct.
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