oyer Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $63,700, the accumulated depreciation is $25,500, 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 $132,500. 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 $201,900   $201,900   Direct materials $68,800   $68,800   Direct labor 47,800   —   Power and maintenance 4,500   23,600   Taxes, insurance, etc. 1,600   5,300   Selling and administrative expenses 47,800   47,800   Total expenses $170,500   $145,500     Question Content Area 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". If required, use a minus sign to indicate a loss. Differential AnalysisContinue 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 Effects (Alternative 2) Revenues:       Sales (5 years) $fill in the blank 4e84df06203c073_1 $fill in the blank 4e84df06203c073_2 $fill in the blank 4e84df06203c073_3 Costs:       Purchase price fill in the blank 4e84df06203c073_4 fill in the blank 4e84df06203c073_5 fill in the blank 4e84df06203c073_6 Direct materials (5 years) fill in the blank 4e84df06203c073_7 fill in the blank 4e84df06203c073_8 fill in the blank 4e84df06203c073_9 Direct labor (5 years) fill in the blank 4e84df06203c073_10 fill in the blank 4e84df06203c073_11 fill in the blank 4e84df06203c073_12 Power and maintenance (5 years) fill in the blank 4e84df06203c073_13 fill in the blank 4e84df06203c073_14 fill in the blank 4e84df06203c073_15 Taxes, insurance, etc. (5 years) fill in the blank 4e84df06203c073_16 fill in the blank 4e84df06203c073_17 fill in the blank 4e84df06203c073_18 Selling and admin. expenses (5 years) fill in the blank 4e84df06203c073_19 fill in the blank 4e84df06203c073_20 fill in the blank 4e84df06203c073_21 Profit (Loss) $fill in the blank 4e84df06203c073_22 $fill in the blank 4e84df06203c073_23 $fill in the blank 4e84df06203c073_24   Question Content Area 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.

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Boyer Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $63,700, the accumulated depreciation is $25,500, 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 $132,500. 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 $201,900   $201,900  
Direct materials $68,800   $68,800  
Direct labor 47,800    
Power and maintenance 4,500   23,600  
Taxes, insurance, etc. 1,600   5,300  
Selling and administrative expenses 47,800   47,800  
Total expenses $170,500   $145,500  

 

Question Content Area

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". If required, use a minus sign to indicate a loss.

Differential AnalysisContinue 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
Effects
(Alternative 2)
Revenues:      
Sales (5 years) $fill in the blank 4e84df06203c073_1 $fill in the blank 4e84df06203c073_2 $fill in the blank 4e84df06203c073_3
Costs:      
Purchase price fill in the blank 4e84df06203c073_4 fill in the blank 4e84df06203c073_5 fill in the blank 4e84df06203c073_6
Direct materials (5 years) fill in the blank 4e84df06203c073_7 fill in the blank 4e84df06203c073_8 fill in the blank 4e84df06203c073_9
Direct labor (5 years) fill in the blank 4e84df06203c073_10 fill in the blank 4e84df06203c073_11 fill in the blank 4e84df06203c073_12
Power and maintenance (5 years) fill in the blank 4e84df06203c073_13 fill in the blank 4e84df06203c073_14 fill in the blank 4e84df06203c073_15
Taxes, insurance, etc. (5 years) fill in the blank 4e84df06203c073_16 fill in the blank 4e84df06203c073_17 fill in the blank 4e84df06203c073_18
Selling and admin. expenses (5 years) fill in the blank 4e84df06203c073_19 fill in the blank 4e84df06203c073_20 fill in the blank 4e84df06203c073_21
Profit (Loss) $fill in the blank 4e84df06203c073_22 $fill in the blank 4e84df06203c073_23 $fill in the blank 4e84df06203c073_24
 

Question Content Area

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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