Differential Analysis Report for Machine Replacement Lone Wolf Technologies Inc. assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $94,000, the accumulated depreciation is $37,600, its remaining useful life is five years, and its residual value is zero. A proposal was made to replace the present manufacturing procedure with a fully automatic machine that will cost $177,100. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on current and proposed operations: CurrentOperations ProposedOperations Sales $298,000 $298,000 Direct materials $101,500 $101,500 Direct labor 70,500 23,500 Power and maintenance 6,600 11,300 Taxes, insurance, etc. 2,400 7,800 Selling and administrative expenses 70,500 70,500 Total expenses $251,500 $214,600 a. Prepare a differential analysis report for the proposal to replace the machine. Include in the analysis both the net differential change in costs anticipated over the five years and the net annual differential change in costs anticipated. LONE WOLF TECHNOLOGIES Replace Machine Differential Analysis Report Annual costs and expenses—present machine $ Annual costs and expenses—new machine $ Number of years applicable × $ Cost of new machine $ Annual net differential decrease in costs and expenses—new machine $ b. Based only on the data presented, should the proposal be accepted? c. What are some of the other factors that should be considered before a final decision is made? Do both present and proposed operations provide the same capacity? What are the opportunity costs associated with alternative uses of the $177,100 outlay required to purchase the automatic machine? Is the product improved by using automatic machinery? What is the book value of the manually operated machine that will be replaced? Select the relevant factor(s) from the list above.

Differential Analysis Report for Machine Replacement Lone Wolf Technologies Inc. assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $94,000, the accumulated depreciation is $37,600, its remaining useful life is five years, and its residual value is zero. A proposal was made to replace the present manufacturing procedure with a fully automatic machine that will cost $177,100. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on current and proposed operations: CurrentOperations ProposedOperations Sales $298,000 $298,000 Direct materials $101,500 $101,500 Direct labor 70,500 23,500 Power and maintenance 6,600 11,300 Taxes, insurance, etc. 2,400 7,800 Selling and administrative expenses 70,500 70,500 Total expenses $251,500 $214,600 a. Prepare a differential analysis report for the proposal to replace the machine. Include in the analysis both the net differential change in costs anticipated over the five years and the net annual differential change in costs anticipated. LONE WOLF TECHNOLOGIES Replace Machine Differential Analysis Report Annual costs and expenses—present machine $ Annual costs and expenses—new machine $ Number of years applicable × $ Cost of new machine $ Annual net differential decrease in costs and expenses—new machine $ b. Based only on the data presented, should the proposal be accepted? c. What are some of the other factors that should be considered before a final decision is made? Do both present and proposed operations provide the same capacity? What are the opportunity costs associated with alternative uses of the $177,100 outlay required to purchase the automatic machine? Is the product improved by using automatic machinery? What is the book value of the manually operated machine that will be replaced? Select the relevant factor(s) from the list above.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Differential Analysis Report for Machine Replacement

Lone Wolf Technologies Inc. assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $94,000, the accumulated depreciation is $37,600, its remaining useful life is five years, and its residual value is zero. A proposal was made to replace the present manufacturing procedure with a fully automatic machine that will cost $177,100. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on current and proposed operations:

	Current Operations	Proposed Operations
Sales	$298,000		$298,000
Direct materials	$101,500		$101,500
Direct labor	70,500		23,500
Power and maintenance	6,600		11,300
Taxes, insurance, etc.	2,400		7,800
Selling and administrative expenses	70,500		70,500
Total expenses	$251,500		$214,600

a. Prepare a differential analysis report for the proposal to replace the machine. Include in the analysis both the net differential change in costs anticipated over the five years and the net annual differential change in costs anticipated.

LONE WOLF TECHNOLOGIES
Replace Machine
Differential Analysis Report
Annual costs and expenses—present machine	$
Annual costs and expenses—new machine
	$
Number of years applicable	×
	$
Cost of new machine
	$
Annual net differential decrease in costs and expenses—new machine	$

b. Based only on the data presented, should the proposal be accepted?

c. What are some of the other factors that should be considered before a final decision is made?

Do both present and proposed operations provide the same capacity?
What are the opportunity costs associated with alternative uses of the $177,100 outlay required to purchase the automatic machine?
Is the product improved by using automatic machinery?
What is the book value of the manually operated machine that will be replaced?

Select the relevant factor(s) from the list above.

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