Flint Tooling Company 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 $108,500 Annual depreciation (straight-line) 10,850 Annual manufacturing costs, excluding depreciation 38,800 Annual nonmanufacturing operating expenses 11,700 Annual revenue 95,100 Current estimated selling price of the machine 35,000     New Machine Cost of machine, 6-year life $136,200 Annual depreciation (straight-line) 22,700 Estimated annual manufacturing costs, exclusive of depreciation 19,100 Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine. Required: Question Content Area 1.  Prepare a differential analysis as of November 8 to determine whether to Continue with Old Machine (Alternative 1) or Replace Old Machine (Alternative 2). The analysis should indicate the differential profit that would result over the 6-year period if the new machine is acquired. If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential AnalysisContinue 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 Effects (Alternative 2) Revenues       Proceeds from sale of old machine $fill in the blank 2e78b8f85fe203a_1 $fill in the blank 2e78b8f85fe203a_2 $fill in the blank 2e78b8f85fe203a_3 Costs       Purchase price fill in the blank 2e78b8f85fe203a_4 fill in the blank 2e78b8f85fe203a_5 fill in the blank 2e78b8f85fe203a_6 Annual manufacturing costs (6 yrs.) fill in the blank 2e78b8f85fe203a_7 fill in the blank 2e78b8f85fe203a_8 fill in the blank 2e78b8f85fe203a_9 Profit (loss) $fill in the blank 2e78b8f85fe203a_10 $fill in the blank 2e78b8f85fe203a_11 $fill in the blank 2e78b8f85fe203a_12   Question Content Area 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.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Flint Tooling Company 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 $108,500
Annual depreciation (straight-line) 10,850
Annual manufacturing costs, excluding depreciation 38,800
Annual nonmanufacturing operating expenses 11,700
Annual revenue 95,100
Current estimated selling price of the machine 35,000
   
New Machine
Cost of machine, 6-year life $136,200
Annual depreciation (straight-line) 22,700
Estimated annual manufacturing costs, exclusive of depreciation 19,100

Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.

Required:

Question Content Area

1.  Prepare a differential analysis as of November 8 to determine whether to Continue with Old Machine (Alternative 1) or Replace Old Machine (Alternative 2). The analysis should indicate the differential profit that would result over the 6-year period if the new machine is acquired. If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential AnalysisContinue 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 Effects
(Alternative 2)
Revenues      
Proceeds from sale of old machine $fill in the blank 2e78b8f85fe203a_1 $fill in the blank 2e78b8f85fe203a_2 $fill in the blank 2e78b8f85fe203a_3
Costs      
Purchase price fill in the blank 2e78b8f85fe203a_4 fill in the blank 2e78b8f85fe203a_5 fill in the blank 2e78b8f85fe203a_6
Annual manufacturing costs (6 yrs.) fill in the blank 2e78b8f85fe203a_7 fill in the blank 2e78b8f85fe203a_8 fill in the blank 2e78b8f85fe203a_9
Profit (loss) $fill in the blank 2e78b8f85fe203a_10 $fill in the blank 2e78b8f85fe203a_11 $fill in the blank 2e78b8f85fe203a_12
 

Question Content Area

2.  What other factors should be considered before a final decision is reached?

  1. Are there any improvements in the quality of work turned out by the new machine?
  2. What opportunities are available for the use of the funds required to purchase the new machine?
  3. 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?
  4. What affect would this decision have on employee morale?
  5. None of these choices is correct.
 
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