Differential Analysis for Machine Replacement ProposalFlint 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 whichhas any estimated residual value, are as follows:Old MachineCost of machine, eight-year life $38,000Annual depreciation (straight-line) 4,750Annual manufacturing costs, excluding depreciation 12,400Annual nonmanufacturing operating expenses 2,700Annual revenue 32,400Current estimated selling price of the machine 12,900New MachineCost of machine, six-year life $57,000Annual depreciation (straight-line) 9,500Estimated annual manufacturing costs, exclusive of depreciation 3,400Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase ofthe 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 thedifferential income that would result over the six-year period if the new machine is acquired. If an amountis zero, enter "0". Use a minus sign to indicate subtracted amounts, negative amounts, or a loss.
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
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 "0". Use a minus sign to indicate subtracted amounts, negative amounts, or a loss.
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