Obj. 1 PR 11-2A Differential analysis for machine replacement proposal Gutenberg Publishers Inc. is considering replacing a machine that has been used in its factory for 4 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: W Old Machine Cost of machine, 10-year life Annual depreciation (straight-line) Annual manufacturing costs, excluding depreciation Annual nonmanufacturing operating expenses Annual revenue Current estimated selling price of machine 2. New Machine Purchase price of machine, 6-year life Annual depreciation (straight-line) Estimated annual manufacturing costs, excluding depreciation $120,000 12,000 30,000 22,500 90,000 40,000 $160,000 16,000 7,500 Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine. > Instructions 1. Prepare a differential analysis as of November 30 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the total differential profit that would result over the 6-year period if the new machine is acquired. List other factors that should be considered before a final decision is reached.
Obj. 1 PR 11-2A Differential analysis for machine replacement proposal Gutenberg Publishers Inc. is considering replacing a machine that has been used in its factory for 4 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: W Old Machine Cost of machine, 10-year life Annual depreciation (straight-line) Annual manufacturing costs, excluding depreciation Annual nonmanufacturing operating expenses Annual revenue Current estimated selling price of machine 2. New Machine Purchase price of machine, 6-year life Annual depreciation (straight-line) Estimated annual manufacturing costs, excluding depreciation $120,000 12,000 30,000 22,500 90,000 40,000 $160,000 16,000 7,500 Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine. > Instructions 1. Prepare a differential analysis as of November 30 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the total differential profit that would result over the 6-year period if the new machine is acquired. List other factors that should be considered before a final decision is reached.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:PR 11-2A Differential analysis for machine replacement proposal
Obj. 1
Gutenberg Publishers Inc. is considering replacing a machine that has been used in its factory for
4 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:
W
Old Machine
Cost of machine, 10-year life
Annual depreciation (straight-line)
Annual manufacturing costs, excluding depreciation
Annual nonmanufacturing operating expenses
Annual revenue
Current estimated selling price of machine
2.
New Machine
Purchase price of machine, 6-year life
Annual depreciation (straight-line)
Estimated annual manufacturing costs, excluding depreciation
$120.000
12,000
30,000
22,500
90,000
40,000
$160,000
16,000
7,500
Annual nonmanufacturing operating expenses and revenue are not expected to be affected by
purchase of the new machine.
Instructions
1. Prepare a differential analysis as of November 30 comparing operations using the present
machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis
should indicate the total differential profit that would result over the 6-year period if the new
machine is acquired.
List other factors that should be considered before a final decision is reached.
Transcribed Image Text:2 Cost of machine, ten-year life
3 Annual depreciation (straight-line)
4 Annual manufacturing costs, excluding depreciation
5 Annual nonmanufacturing operating expenses
6 Annual revenue
7
Current estimated selling price of the machine
8 Remaining useful life
9
10
11 Purchase price of machine, six-year life
12 Annual depreciation (straight-line)
13 Estimated annual manufacturing costs, exclusive of depreciation
14 Useful life
15
1618
16-1
17
18
19
852372 S53SS383
20
21 Revenues:
23 Costs:
24
26
28
27 Income (loss)
29
30 2
New Machine
31
Proceeds from sale of old machine
Purchase price of new machine
Manufacturing costs
Total costs
PR 9-2A Template
S
Ⓒ
$
120,000
12,000
30,000
4
Differential Analysis
Continue with Old Machine (Alternative 1) or Replace Old Machine (Alternative 2)
8-Nov
22,500
90,000
40,000
$
160,000
16,000
7,500
Continue with
Old Machine
(Alternative
1)
years
years
Replace Old
Machine
(Alternative 2)
$
$
S
$
Differential
Effect on
Income
(Alternative
2)
40.000 $
[160,000)
(160.000) $
(120,000) $
40,000
(160,000)
(160,000)
(120.000
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