Replace Equipment A machine with a book value of $245,700 has an estimated remaining life of 6 years. A proposal is offered to sell the old machine for $215,500 and replace it with a new machine at a cost of $281,200. The new machine has a 6-year life with no residual value. The new machine would reduce annual direct labor costs from $50,900 to $40,700. a. Prepare a differential analysis dated June 2 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Revenues: Line Item Description Costs: Differential Analysis Continue (Alt. 1) or Replace (Alt. 2) Old Machine June 2 Proceeds from sale of old machine Purchase price Direct labor (6 years) Profit (loss) Continue Replace Old with Old Machine Machine (Alternative (Alternative 1) 2) 000 Differential Effects (Alternative 2) b. Should the company continue with the old machine (Alternative 1) or replace the old machine (Alternative 2)?
Replace Equipment A machine with a book value of $245,700 has an estimated remaining life of 6 years. A proposal is offered to sell the old machine for $215,500 and replace it with a new machine at a cost of $281,200. The new machine has a 6-year life with no residual value. The new machine would reduce annual direct labor costs from $50,900 to $40,700. a. Prepare a differential analysis dated June 2 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Revenues: Line Item Description Costs: Differential Analysis Continue (Alt. 1) or Replace (Alt. 2) Old Machine June 2 Proceeds from sale of old machine Purchase price Direct labor (6 years) Profit (loss) Continue Replace Old with Old Machine Machine (Alternative (Alternative 1) 2) 000 Differential Effects (Alternative 2) b. Should the company continue with the old machine (Alternative 1) or replace the old machine (Alternative 2)?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Replace Equipment
A machine with a book value of $245,700 has an estimated remaining life of 6
years. A proposal is offered to sell the old machine for $215,500 and replace it
with a new machine at a cost of $281,200. The new machine has a 6-year life
with no residual value. The new machine would reduce annual direct labor costs
from $50,900 to $40,700.
a. Prepare a differential analysis dated June 2 on whether to continue with the
old machine (Alternative 1) or replace the old machine (Alternative 2). If an
amount is zero, enter "0". If required, use a minus sign to indicate a loss.
Revenues:
Line Item Description
Costs:
Differential Analysis
Continue (Alt. 1) or Replace (Alt. 2) Old Machine
June 2
Proceeds from sale of old
machine
Purchase price
Direct labor (6 years)
Profit (loss)
Continue
Replace
Old
with Old
Machine
Machine
(Alternative (Alternative
1)
2)
000
Differential
Effects
(Alternative
2)
b. Should the company continue with the old machine (Alternative 1) or replace
the old machine (Alternative 2)?
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