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, 10-year life $107,000 Annual depreciation (straight-line) 10,700 Annual manufacturing costs, excluding depreciation 39,400 Annual nonmanufacturing operating expenses 12,300 Annual revenue 95,200 Current estimated selling price of the machine 36,700 New Machine Cost of machine, six-year life $138,000 Annual depreciation (straight-line) 23,000 Estimated annual manufacturing costs, exclusive of depreciation 18,800 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 acfa9705407a07b_1 $fill in the blank acfa9705407a07b_2 $fill in the blank acfa9705407a07b_3 Costs Purchase price fill in the blank acfa9705407a07b_4 fill in the blank acfa9705407a07b_5 fill in the blank acfa9705407a07b_6 Annual manufacturing costs (6 yrs.) fill in the blank acfa9705407a07b_7 fill in the blank acfa9705407a07b_8 fill in the blank acfa9705407a07b_9 Income (Loss) $fill in the blank acfa9705407a07b_10 $fill in the blank acfa9705407a07b_11 $fill in the blank acfa9705407a07b_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.

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, 10-year life $107,000 Annual depreciation (straight-line) 10,700 Annual manufacturing costs, excluding depreciation 39,400 Annual nonmanufacturing operating expenses 12,300 Annual revenue 95,200 Current estimated selling price of the machine 36,700 New Machine Cost of machine, six-year life $138,000 Annual depreciation (straight-line) 23,000 Estimated annual manufacturing costs, exclusive of depreciation 18,800 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 acfa9705407a07b_1 $fill in the blank acfa9705407a07b_2 $fill in the blank acfa9705407a07b_3 Costs Purchase price fill in the blank acfa9705407a07b_4 fill in the blank acfa9705407a07b_5 fill in the blank acfa9705407a07b_6 Annual manufacturing costs (6 yrs.) fill in the blank acfa9705407a07b_7 fill in the blank acfa9705407a07b_8 fill in the blank acfa9705407a07b_9 Income (Loss) $fill in the blank acfa9705407a07b_10 $fill in the blank acfa9705407a07b_11 $fill in the blank acfa9705407a07b_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.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Differential Analysis for Machine Replacement Proposal

Old Machine
Cost of machine, 10-year life	$107,000
Annual depreciation (straight-line)	10,700
Annual manufacturing costs, excluding depreciation	39,400
Annual nonmanufacturing operating expenses	12,300
Annual revenue	95,200
Current estimated selling price of the machine	36,700

New Machine
Cost of machine, six-year life	$138,000
Annual depreciation (straight-line)	23,000
Estimated annual manufacturing costs, exclusive of depreciation	18,800

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 acfa9705407a07b_1	$fill in the blank acfa9705407a07b_2	$fill in the blank acfa9705407a07b_3
Costs
Purchase price	fill in the blank acfa9705407a07b_4	fill in the blank acfa9705407a07b_5	fill in the blank acfa9705407a07b_6
Annual manufacturing costs (6 yrs.)	fill in the blank acfa9705407a07b_7	fill in the blank acfa9705407a07b_8	fill in the blank acfa9705407a07b_9
Income (Loss)	$fill in the blank acfa9705407a07b_10	$fill in the blank acfa9705407a07b_11	$fill in the blank acfa9705407a07b_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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