Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $599,600 and has $349,100 of accumulated depreciation to date, with a new machine that has a purchase price of $486,900. The old machine could be sold for $63,100. The annual variable production costs associated with the old machine are estimated to be $158,200 per year for 8 years. The annual variable production costs for the new machine are estimated to be $102,200 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 Costs: Line Item Description Revenues: Proceeds from sale of old machine Purchase price Variable productions costs (8 years) Profit (loss) Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) b. What is the sunk cost in this situation? The sunk cost is $ Differential Effects (Alternative 2) a.2 Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.
Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $599,600 and has $349,100 of accumulated depreciation to date, with a new machine that has a purchase price of $486,900. The old machine could be sold for $63,100. The annual variable production costs associated with the old machine are estimated to be $158,200 per year for 8 years. The annual variable production costs for the new machine are estimated to be $102,200 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 Costs: Line Item Description Revenues: Proceeds from sale of old machine Purchase price Variable productions costs (8 years) Profit (loss) Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) b. What is the sunk cost in this situation? The sunk cost is $ Differential Effects (Alternative 2) a.2 Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Machine Replacement Decision
A company is considering replacing an old piece of machinery, which cost $599,600 and has $349,100 of accumulated depreciation to date, with a new machine that has a purchase price
of $486,900. The old machine could be sold for $63,100. The annual variable production costs associated with the old machine are estimated to be $158,200 per year for 8 years. The
annual variable production costs for the new machine are estimated to be $102,200 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
Costs:
Line Item Description
Revenues:
Proceeds from sale of old machine
Purchase price
Variable productions costs (8 years)
Profit (loss)
Continue with
Old Machine
(Alternative 1)
Replace Old Machine
(Alternative 2)
b. What is the sunk cost in this situation?
The sunk cost is $
E
Differential Effects
(Alternative 2)
a.2 Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.
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