Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $75,200, the accumulated depreciation is $30,100, 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 $156,400. 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 $238,400 $238,400 Direct materials $81,200 $81,200 Direct labor 56,400 — Power and maintenance 5,300 27,800 Taxes, insurance, etc. 1,900 6,200 Selling and administrative expenses 56,400 56,400 Total expenses $201,200 $171,600 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". 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) Sales (5 years) $fill in the blank 501a65f16ff2fed_1 $fill in the blank 501a65f16ff2fed_2 $fill in the blank 501a65f16ff2fed_3 Costs: Purchase price fill in the blank 501a65f16ff2fed_4 fill in the blank 501a65f16ff2fed_5 fill in the blank 501a65f16ff2fed_6 Direct materials (5 years) fill in the blank 501a65f16ff2fed_7 fill in the blank 501a65f16ff2fed_8 fill in the blank 501a65f16ff2fed_9 Direct labor (5 years) fill in the blank 501a65f16ff2fed_10 fill in the blank 501a65f16ff2fed_11 fill in the blank 501a65f16ff2fed_12 Power and maintenance (5 years) fill in the blank 501a65f16ff2fed_13 fill in the blank 501a65f16ff2fed_14 fill in the blank 501a65f16ff2fed_15 Taxes, insurance, etc. (5 years) fill in the blank 501a65f16ff2fed_16 fill in the blank 501a65f16ff2fed_17 fill in the blank 501a65f16ff2fed_18 Selling and admin. expenses (5 years) fill in the blank 501a65f16ff2fed_19 fill in the blank 501a65f16ff2fed_20 fill in the blank 501a65f16ff2fed_21 Income (Loss) $fill in the blank 501a65f16ff2fed_22 $fill in the blank 501a65f16ff2fed_23 $fill in the blank 501a65f16ff2fed_24 b. Based only on the data presented, should the proposal be accepted?

Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $75,200, the accumulated depreciation is $30,100, 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 $156,400. 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 $238,400 $238,400 Direct materials $81,200 $81,200 Direct labor 56,400 — Power and maintenance 5,300 27,800 Taxes, insurance, etc. 1,900 6,200 Selling and administrative expenses 56,400 56,400 Total expenses $201,200 $171,600 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". 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) Sales (5 years) $fill in the blank 501a65f16ff2fed_1 $fill in the blank 501a65f16ff2fed_2 $fill in the blank 501a65f16ff2fed_3 Costs: Purchase price fill in the blank 501a65f16ff2fed_4 fill in the blank 501a65f16ff2fed_5 fill in the blank 501a65f16ff2fed_6 Direct materials (5 years) fill in the blank 501a65f16ff2fed_7 fill in the blank 501a65f16ff2fed_8 fill in the blank 501a65f16ff2fed_9 Direct labor (5 years) fill in the blank 501a65f16ff2fed_10 fill in the blank 501a65f16ff2fed_11 fill in the blank 501a65f16ff2fed_12 Power and maintenance (5 years) fill in the blank 501a65f16ff2fed_13 fill in the blank 501a65f16ff2fed_14 fill in the blank 501a65f16ff2fed_15 Taxes, insurance, etc. (5 years) fill in the blank 501a65f16ff2fed_16 fill in the blank 501a65f16ff2fed_17 fill in the blank 501a65f16ff2fed_18 Selling and admin. expenses (5 years) fill in the blank 501a65f16ff2fed_19 fill in the blank 501a65f16ff2fed_20 fill in the blank 501a65f16ff2fed_21 Income (Loss) $fill in the blank 501a65f16ff2fed_22 $fill in the blank 501a65f16ff2fed_23 $fill in the blank 501a65f16ff2fed_24 b. Based only on the data presented, should the proposal be accepted?

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

im Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $75,200, the accumulated depreciation is $30,100, 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 $156,400. 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	$238,400	$238,400
Direct materials	$81,200	$81,200
Direct labor	56,400	—
Power and maintenance	5,300	27,800
Taxes, insurance, etc.	1,900	6,200
Selling and administrative expenses	56,400	56,400
Total expenses	$201,200	$171,600

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".

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)
Sales (5 years)	$fill in the blank 501a65f16ff2fed_1	$fill in the blank 501a65f16ff2fed_2	$fill in the blank 501a65f16ff2fed_3
Costs:
Purchase price	fill in the blank 501a65f16ff2fed_4	fill in the blank 501a65f16ff2fed_5	fill in the blank 501a65f16ff2fed_6
Direct materials (5 years)	fill in the blank 501a65f16ff2fed_7	fill in the blank 501a65f16ff2fed_8	fill in the blank 501a65f16ff2fed_9
Direct labor (5 years)	fill in the blank 501a65f16ff2fed_10	fill in the blank 501a65f16ff2fed_11	fill in the blank 501a65f16ff2fed_12
Power and maintenance (5 years)	fill in the blank 501a65f16ff2fed_13	fill in the blank 501a65f16ff2fed_14	fill in the blank 501a65f16ff2fed_15
Taxes, insurance, etc. (5 years)	fill in the blank 501a65f16ff2fed_16	fill in the blank 501a65f16ff2fed_17	fill in the blank 501a65f16ff2fed_18
Selling and admin. expenses (5 years)	fill in the blank 501a65f16ff2fed_19	fill in the blank 501a65f16ff2fed_20	fill in the blank 501a65f16ff2fed_21
Income (Loss)	$fill in the blank 501a65f16ff2fed_22	$fill in the blank 501a65f16ff2fed_23	$fill in the blank 501a65f16ff2fed_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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