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Replace Equipment A machine with a book value of $245,400 has an estimated six-year life. A proposal is offered to sell the old machine for $214,100 and replace it with a new machine at a cost of $280,400. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from $50,100 to $40,100. a. Prepare a differential analysis dated April 11 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. Differential Analysis Continue Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) April 11   Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Differential Effects (Alternative 2) Revenues:       Proceeds from sale of old machine $ $ $ Costs:       Purchase price       Direct labor (6 years)       Profit (Loss) $ $ $ 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 $245,400 has an estimated six-year life. A proposal is offered to sell the old machine for $214,100 and replace it with a new machine at a cost of $280,400. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from $50,100 to $40,100. a. Prepare a differential analysis dated April 11 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. Differential Analysis Continue Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) April 11   Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Differential Effects (Alternative 2) Revenues:       Proceeds from sale of old machine $ $ $ Costs:       Purchase price       Direct labor (6 years)       Profit (Loss) $ $ $ b. Should the company continue with the old machine (Alternative 1) or replace the old machine (Alternative 2)?

FINANCIAL ACCOUNTING
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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  1. Replace Equipment

    A machine with a book value of $245,400 has an estimated six-year life. A proposal is offered to sell the old machine for $214,100 and replace it with a new machine at a cost of $280,400. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from $50,100 to $40,100.

    a. Prepare a differential analysis dated April 11 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.

    Differential Analysis
    Continue Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
    April 11
      Continue
    with Old
    Machine
    (Alternative 1)    		 Replace
    Old
    Machine
    (Alternative 2)    		 Differential
    Effects
    (Alternative 2)
    Revenues:      
    Proceeds from sale of old machine $ $ $
    Costs:      
    Purchase price      
    Direct labor (6 years)      
    Profit (Loss) $ $ $

    b. Should the company continue with the old machine (Alternative 1) or replace the old machine (Alternative 2)?
     

 
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