Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $600,900 and has $352,800 of accumulated depreciation to date, with a new machine that has a purchase price of $485,500. The old machine could be sold for $64,600. The annual variable production costs associated with the old machine are estimated to be $155,400 per year for 8 years. The annual variable production costs for the new machine are estimated to be $101,100 per year for 8 years. a.1 Prepare a differential analysis dated December 10 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue with (Alt. 1) or Replace (Alt. 2) Old Machine December 10 tA Line Item Description Continue with Old Machine Replace Old Machine Differential Effects (Alternative 2) (Alternative 2) (Alternative 1) Revenues: Proceeds from sale of old machine $ Costs: Purchase price Variable productions costs (8 years) Profit (loss) A A a.2 Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. b. What is the sunk cost in this situation? The sunk cost is $
Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $600,900 and has $352,800 of accumulated depreciation to date, with a new machine that has a purchase price of $485,500. The old machine could be sold for $64,600. The annual variable production costs associated with the old machine are estimated to be $155,400 per year for 8 years. The annual variable production costs for the new machine are estimated to be $101,100 per year for 8 years. a.1 Prepare a differential analysis dated December 10 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue with (Alt. 1) or Replace (Alt. 2) Old Machine December 10 tA Line Item Description Continue with Old Machine Replace Old Machine Differential Effects (Alternative 2) (Alternative 2) (Alternative 1) Revenues: Proceeds from sale of old machine $ Costs: Purchase price Variable productions costs (8 years) Profit (loss) A A a.2 Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. b. What is the sunk cost in this situation? The sunk cost is $
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Machine Replacement Decision
A company is considering replacing an old piece of machinery, which cost $600,900 and has $352,800 of accumulated depreciation to date, with a new machine that
has a purchase price of $485,500. The old machine could be sold for $64,600. The annual variable production costs associated with the old machine are estimated to be
$155,400 per year for 8 years. The annual variable production costs for the new machine are estimated to be $101,100 per year for 8 years.
a.1 Prepare a differential analysis dated December 10 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is
zero, enter "0". If required, use a minus sign to indicate a loss.
Differential Analysis
Continue with (Alt. 1) or Replace (Alt. 2) Old Machine
December 10
tA
Line Item Description
Continue with
Old Machine
Replace Old Machine
Differential Effects
(Alternative 2)
(Alternative 2)
(Alternative 1)
Revenues:
Proceeds from sale of old machine
$
Costs:
Purchase price
Variable productions costs (8 years)
Profit (loss)
A
A
a.2 Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.
b. What is the sunk cost in this situation?
The sunk cost is $
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