Prepare a differential analysis as of November 8 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the differential profit that would result over the six-year period if the new machine is acquired. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
Differential Analysis for Machine Replacement Proposal
Franklin Printing Company is considering replacing a machine that has been used in its factory for four 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:
| Old Machine | |
| Cost of machine, ten-year life | $110,000 |
| Annual |
11,000 |
| Annual |
39,100 |
| Annual nonmanufacturing operating expenses | 11,300 |
| Annual revenue | 94,600 |
| Current estimated selling price of the machine | 35,900 |
| New Machine | |
| Cost of machine, six-year life | $138,000 |
| Annual depreciation (straight-line) | 23,000 |
| Estimated annual manufacturing costs, exclusive of depreciation | 17,700 |
Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.
Required:
1. Prepare a differential analysis as of November 8 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the differential profit that would result over the six-year period if the new machine is acquired. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
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