Replace Equipment A machine with a book value of $82,500 has an estimated five-year life. A proposal is offered to sell the old machine for $48,000 and replace it with a new machine at a cost of $72,000. The new machine has a five-year life with no residual value. The new machine would reduce annual direct labor costs from $10,300 to $8,300. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. X Open spreadsheet 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". Use a minus sign to indicate costs, losses, or negative differential effect on income. Revenues: Proceeds from sale of old machine. Costs: Purchase price Direct labor (5 years) Differential Analysis Continue (Alt. 1) or Replace (Alt. 2) Old Machine June 2 Continue with Old Profit (Loss) Machine (Alternative 1). Replace Old Machine (Alternative 2) Differential Effects (Alternative 2)

Replace Equipment A machine with a book value of $82,500 has an estimated five-year life. A proposal is offered to sell the old machine for $48,000 and replace it with a new machine at a cost of $72,000. The new machine has a five-year life with no residual value. The new machine would reduce annual direct labor costs from $10,300 to $8,300. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. X Open spreadsheet 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". Use a minus sign to indicate costs, losses, or negative differential effect on income. Revenues: Proceeds from sale of old machine. Costs: Purchase price Direct labor (5 years) Differential Analysis Continue (Alt. 1) or Replace (Alt. 2) Old Machine June 2 Continue with Old Profit (Loss) Machine (Alternative 1). Replace Old Machine (Alternative 2) Differential Effects (Alternative 2)

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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Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $46,000 and a remaining useful life of five years. It can be sold now for $56,000. Variable manufacturing costs are $44,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is five years. Machine A Machine B Purchase price $ 116,000 $ 129,000 Variable manufacturing costs per year 21,000 13,000 (a) Compute the income increase or decrease from replacing the old machine with Machine A. (b) Compute the income increase or decrease from replacing the old machine with Machine B. (c) Should Lopez keep or replace its old machine? (d) If the machine should be replaced, which new machine should Lopez purchase?
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