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ranklin Printing Company 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 th old Machine Cost of machine, 10-year life $106,000 Annual depreciation (straight-line) 10,600 Annual manufacturing costs, excluding depreciation 38,900 Annual nonmanufacturing operating expenses 11,400 Annual revenue 95,700 Current estimated selling price of the machine 35,000 New Machine Cost of machine, 6-year life $136,200 Annual depreciation (straight-line) 22,700 Estimated annual manufacturing costs, exclusive of depreciation 18,800 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 to determine whether to Continue with Old Machine (Alternative 1) or Replace Old Machine (Alternative 2). The analysis shou If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) November 8 Replace Old Machine (Alternative 1) (Alternative 2) Continue with Differential Effects Old Machine (Alternative 2) Revenues Proceeds from sale of old machine 35.000 35.000 Costs Purchase price -136,200 -136.200 Annual manufacturing costs (6 yrs.) -233,400 -112.800 120,600

ranklin Printing Company 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 th old Machine Cost of machine, 10-year life $106,000 Annual depreciation (straight-line) 10,600 Annual manufacturing costs, excluding depreciation 38,900 Annual nonmanufacturing operating expenses 11,400 Annual revenue 95,700 Current estimated selling price of the machine 35,000 New Machine Cost of machine, 6-year life $136,200 Annual depreciation (straight-line) 22,700 Estimated annual manufacturing costs, exclusive of depreciation 18,800 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 to determine whether to Continue with Old Machine (Alternative 1) or Replace Old Machine (Alternative 2). The analysis shou If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) November 8 Replace Old Machine (Alternative 1) (Alternative 2) Continue with Differential Effects Old Machine (Alternative 2) Revenues Proceeds from sale of old machine 35.000 35.000 Costs Purchase price -136,200 -136.200 Annual manufacturing costs (6 yrs.) -233,400 -112.800 120,600

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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Differential Analysis for Machine Replacement Proposal Franklin Printing Company 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: Old Machine Cost of machine, 10-year life $106,000 Annual depreciation (straight-line) 10,600 Annual manufacturing costs, excluding depreciation 38,900 Annual nonmanufacturing operating expenses 11,400 Annual revenue 95,700 Current estimated selling price of the machine 35,000 New Machine Cost of machine, 6-year life $136,200 Annual depreciation (straight-line) 22,700 Estimated annual manufacturing costs, exclusive of depreciation 18,800 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 to determine whether to Continue with Old Machine (Alternative 1) or Replace old Machine (Alternative 2). The analysis should indicate the differential profit that would result over the 6-year period if the new machine is acquired. If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with old Machine (Alt. 1) or Replace old Machine (Alt. 2) November 8 Replace Old Machine Continue with Differential Effects old Machine (Alternative 2) (Alternative 1) (Alternative 2) Revenues Proceeds from sale of old machine 35,000 35,000 Costs Purchase price -136,200 -136,200 Annual manufacturing costs (6 yrs.) -233,400 -112,800 120,600 Profit (loss) $ -233,400 -214,000 19,400 2. What other factors should be considered before a final decision is reached? a. Are there any improvements in the quality of work turned out by the new machine? b. What opportunities are available for the use of the funds required to purchase the new machine? c. Are there any improvements in the quality of work turned out by the new machine and what opportunities are available for the use of the funds required to purchase the new machine? d. What affect would this decision have on employee morale? e. None of these choices is correct.
Transcribed Image Text:Differential Analysis for Machine Replacement Proposal Franklin Printing Company 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: Old Machine Cost of machine, 10-year life $106,000 Annual depreciation (straight-line) 10,600 Annual manufacturing costs, excluding depreciation 38,900 Annual nonmanufacturing operating expenses 11,400 Annual revenue 95,700 Current estimated selling price of the machine 35,000 New Machine Cost of machine, 6-year life $136,200 Annual depreciation (straight-line) 22,700 Estimated annual manufacturing costs, exclusive of depreciation 18,800 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 to determine whether to Continue with Old Machine (Alternative 1) or Replace old Machine (Alternative 2). The analysis should indicate the differential profit that would result over the 6-year period if the new machine is acquired. If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with old Machine (Alt. 1) or Replace old Machine (Alt. 2) November 8 Replace Old Machine Continue with Differential Effects old Machine (Alternative 2) (Alternative 1) (Alternative 2) Revenues Proceeds from sale of old machine 35,000 35,000 Costs Purchase price -136,200 -136,200 Annual manufacturing costs (6 yrs.) -233,400 -112,800 120,600 Profit (loss) $ -233,400 -214,000 19,400 2. What other factors should be considered before a final decision is reached? a. Are there any improvements in the quality of work turned out by the new machine? b. What opportunities are available for the use of the funds required to purchase the new machine? c. Are there any improvements in the quality of work turned out by the new machine and what opportunities are available for the use of the funds required to purchase the new machine? d. What affect would this decision have on employee morale? e. None of these choices is correct.
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