repare a differential analysis as of November 8 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2).
ex2.
-
Differential Analysis for Machine Replacement Proposal
Flint Tooling Company is considering replacing a machine that has been used in its factory for two 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, eight-year life $38,000 Annual depreciation (straight-line)4,750 Annual manufacturing costs , excluding depreciation12,400 Annual nonmanufacturing operating expenses 2,700 Annual revenue 32,400 Current estimated selling price of the machine 12,900 New Machine Cost of machine, six-year life $57,000 Annual depreciation (straight-line) 9,500 Estimated annual manufacturing costs, exclusive of depreciation 3,400 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 income that would result over the six-year period if the new machine is acquired. If an amount is zero, enter zero "0". Use a minus sign to indicate a loss.
Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) November 8 Continue with
Old Machine
(Alternative 1)Replace Old
Machine
(Alternative 2)Differential Effect
on Income
(Alternative 2)Revenues: Proceeds from sale of old machine $ $ $ Costs: Purchase price Annual manufacturing costs (6 yrs.) Income (Loss) $ $ $ 2. What other factors should be considered before a final decision is reached?
- Are there any improvements in the quality of work turned out by the new machine?
- What opportunities are available for the use of the funds required to purchase the new machine?
- 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?
- What effect would this decision have on employee morale?
- None of these choices is correct.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
