Flint Tooling 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, ten-year life $108,800 Annual depreciation (straight-line) 10,880 Annual manufacturing costs, excluding depreciation 39,000 Annual nonmanufacturing operating expenses 13,300 Annual revenue 94,200 Current estimated selling price of the machine 35,900 New Machine Cost of machine, six-year life $137,400 Annual depreciation (straight-line) 22,900 Estimated annual manufacturing costs, exclusive of depreciation 17,300 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 differential profit that would result over the six-year period if the new machine is acquired. If an amount is zero, enter "0". If required, 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 Replace Old Machine Differential Old Machine Effects
Flint Tooling 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, ten-year life $108,800 Annual depreciation (straight-line) 10,880 Annual manufacturing costs, excluding depreciation 39,000 Annual nonmanufacturing operating expenses 13,300 Annual revenue 94,200 Current estimated selling price of the machine 35,900 New Machine Cost of machine, six-year life $137,400 Annual depreciation (straight-line) 22,900 Estimated annual manufacturing costs, exclusive of depreciation 17,300 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 differential profit that would result over the six-year period if the new machine is acquired. If an amount is zero, enter "0". If required, 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 Replace Old Machine Differential Old Machine Effects
Chapter1: Financial Statements And Business Decisions
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Transcribed Image Text: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 differential profit that would result over the six-year period if the new machine is acquired. If an amount is zero, enter "0". If
required, 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
Replace
Differential
Old Machine
Old Machine
Effects
(Alternative 1) (Alternative 2) (Alternative 2)
Revenues
Proceeds from sale of old machine
Costs
Purchase price
Annual manufacturing costs (6 yrs.)
Profit (loss)
2. What other factors should be considered before a final decision is reached?
a. Are there any improvements in the quality of work turned out by the new machine?
b. What opportunities are available for the use of the funds required to purchase the new machine?
c. 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?
d. What affect would this decision have on employee morale?
e. None of these choices are correct.
Transcribed Image Text:Flint Tooling 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, ten-year life
$108,800
Annual depreciation (straight-line)
10,880
Annual manufacturing costs, excluding depreciation
39,000
Annual nonmanufacturing operating expenses
13,300
Annual revenue
94,200
Current estimated selling price of the machine
35,900
New Machine
Cost of machine, six-year life
$137,400
Annual depreciation (straight-line)
22,900
Estimated annual manufacturing costs, exclusive of depreciation
17,300
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 differential profit that would result over the six-year period if the new machine is acquired. If an amount is zero, enter "0". If
required, use a minus sign to indicate a loss.
Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
November 8
Replace
Old Machine
Continue with
Differential
Old Machine
Effects
(Alternative 1) (Alternative 2) (Alternative 2)
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