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Purchase price Variable productions costs (8 years) Profit (Loss) 000 a.2 Determine whether to continue with (Alt or replace (Alternative 2) the old machine. b. What is the sunk cost in this situation?

Purchase price Variable productions costs (8 years) Profit (Loss) 000 a.2 Determine whether to continue with (Alt or replace (Alternative 2) the old machine. b. What is the sunk cost in this situation?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $600,000 and has $347,700 of accumulated depreciation to date, with a new machine that has a purchase price of $483,000. The old machine could be sold for $62,300. The annual variable production costs associated with the old machine are estimated to be $157,200 per year for eight years. The annual variable production costs for the new machine are estimated to be $99,200 per year for eight years. a.1 Prepare a differential analysis dated May 29 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 Old Machine (Alt. 1) or Replace Old Revenues: Proceeds from sale of old machine. Costs: Machine (Alt. 2) May 29 Purchase price Variable productions costs (8 years) Profit (Loss) Continue with Old Replace Old Differential Machine Machine Effects (Alternative 1) (Alternative 2) (Alternative 2) 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 $
Transcribed Image Text:Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $600,000 and has $347,700 of accumulated depreciation to date, with a new machine that has a purchase price of $483,000. The old machine could be sold for $62,300. The annual variable production costs associated with the old machine are estimated to be $157,200 per year for eight years. The annual variable production costs for the new machine are estimated to be $99,200 per year for eight years. a.1 Prepare a differential analysis dated May 29 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 Old Machine (Alt. 1) or Replace Old Revenues: Proceeds from sale of old machine. Costs: Machine (Alt. 2) May 29 Purchase price Variable productions costs (8 years) Profit (Loss) Continue with Old Replace Old Differential Machine Machine Effects (Alternative 1) (Alternative 2) (Alternative 2) 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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